The Match Out: ASX gives up early gains, China COVID fears weigh on Materials, Appen receives takeover offer

James Gerrish

Market Matters

The ASX200 fell away slowly but surely throughout the day. Finally closing down 49-points after being up +27-points in early trade, it appears the leftover selling in the SPI futures we mentioned this morning was still around in earnest, drawing a line in the sand around the psychological 7200 level for the main index. That is, closing higher than this here will look good technically. Selling was broad-based as you would expect when its futures-led, with more than 60% of the index closing in negative territory. The only shining light was the Tech sector and closely related names, as we saw a solid night by the NASDAQ and a takeover approach for Appen (ASX: APX) appears to have brought out some short coverers and perhaps bargain hunters.

  • The ASX 200 finished down -49pts/ -0.69% at 7105.
  • Tech brushed the market weakness to close 1% higher.
  • Financials (-1.44%) and Real-Estate (-1.24%) were the weakest links.
  • Consumer staples were hit on inflationary fears. Woolworths was in the media talking up their plan to adjust however there are fears that award wages might be increased by 5% to match inflation which would stifle any earnings growth.
  • Coal names were dragged lower as the Newcastle Coal futures price slumped more than 7%. Headlines around COVID cases in China and further lockdowns weighed on the space
  • New Hope Coal (ASX: NHC) -7.8%, was hit hard after downgrading production guidance by around 7.5%. They blamed wet weather at the Bengalla asset in NSW as the main drag on production at their third-quarter update.
  • Appen (ASX: APX) +29.22%, announced they have been approached by Canada’s Telus International in a takeover bid worth $9.50/sh. Issues around performance remain, as discussed below.
  • Business investment missed forecasts this morning, falling -0.3% against an expected rise of 1.5% in the first quarter.
  • Iron Ore was -1.5% lower in Asia today on the back of weaker Chinese demand expectations
  • Gold fell -US$9/-0.5% in Asian trade today, and settled $US1,844 at our close. Gold stocks were weaker as a result, Northern Star (ASX: NST) falling -3.4% was a standout.
  • Asian stocks were okay Hong Kong trading down -0.39%%, Japan +1.17% while China was up +0.21%
  • US Futures are all lower, S&P -0.4% and Nasdaq -0.75%

ASX 200 Chart

Appen (ASX: APX) $8.27

APX +29.22%: The AI tech business announced a non-binding takeover offer had been put forward by Canada’s Telus International today, sending the stock soaring. The $1.7 billion bid at $9.50 a share is nearly a 50% premium to yesterday’s close, but it’s still not enough for Appen to give Telus International a deeper look into the books as they push for more out of the deal. Telus was spun out of a Canadian telco Telus early last year and has already acquired Appen competitor Lionbridge in a $1 billion deal. Appen has been one of the worst performers on the ASX over the last few years, at one stage trading above $40 a share. It’s been caught up in the tech rout but performance has also failed to live up to the hype while Apple’s move to allow users to block app tracking has crimpled revenue. Operating issues appear to be continuing with the company saying revenue was down for the first four months of the year, and EBITDA is expected to fall on the back of increased investment. Shares went into a trading halt this afternoon ahead of their AGM tomorrow. With an update on the takeover expected.

Appen

Broker moves

  • Lottery Corp. Rated New Outperform at Macquarie; PT A$5
  • Cromwell Property Cut to Neutral at JPMorgan
  • Mirvac Group Raised to Overweight at JPMorgan; PT A$2.50
  • Dexus Cut to Neutral at JPMorgan; PT A$12
  • Challenger Raised to Buy at UBS; PT A$8.30
  • Abacus Property Raised to Neutral at JPMorgan; PT A$3.20
  • SCA Property Cut to Underweight at JPMorgan; PT A$3
  • Tabcorp Cut to Neutral at Goldman; PT A$1.07
  • ALS Raised to Add at Morgans Financial Limited; PT A$14.38
  • Pentanet Rated New Speculative Buy at Bell Potter
  • Toys R. Us Anz Rated New Buy at Shaw and Partners

Major movers today

Have a great night,

The Market Matters team.

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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