The ASX shed a further 1.22% today, closing lower in 10 of 11 sectors. Materials led the market down, losing 2.61%. Communication services was the only sector to buck the trend, making modest gains of 0.20%.
Energy stocks have been taking a beating as well, falling 2.24% on the back of continued concerns with reduced Chinese demand.
Lockdowns in China have impacted both the energy and commodity markets, halting widespread gains prompted by the Russian invasion of Ukraine and resulting sanctions.
High rates may impact M&A activity
Mergers and acquisitions hit record highs in 2021, especially in the health, technology, financial services, infrastructure and energy and resources sectors.
Low interest rates, a bull market and cheap and abundant capital contributed to a rash of big IPOs and M&A market booms, and brought ESG credentials to the forefront as new and newly-educated retail investors began to ask questions about the environmental and social impacts of market-listed companies.
The gravy train may be grinding to a halt now, as a volatile market and rising interest rates are compounded by geopolitical turmoil and continued supply chain squeezes.
This market uncertainty is likely to put the screws to local mergers and acquisitions in the near term, according to a report from Clayton Utz, one of the 'Big Six' law firms in Australia.
“We’re concerned interest rates may see a softening of M&A activity,” Liz Humphry, a Perth-based partner at Clayton Utz told the Australian Financial Review. “We’re seeing bidders become more cautious and that is linked to this unpredictability we’re starting to see.
“There is unpredictability on the horizon. That is coming from potentially a change of government, higher rates and a softening in equity capital markets that makes money less easy to raise.”
Inflation pushed beyond the Reserve Bank of Australia’s (RBA) target rate last week, prompting the body to increase the cash rate to 0.35%, a 25-basis-point rise.
Rising interest rates have also put increasing pressure on Tech stocks, which are buckling under a bear market and spiking bond yields.
The combination of the two may spell trouble for Musk’s controversial Twitter takeover offer, with the social media platform’s stock falling to $US47.96 a share, a good US$6.24 a share cheaper than the US$54.20 price implied by Musk's offer.
Hindenburg Research on Monday revealed it had a short position in Twitter, declaring there was an increasing chance the deal would be altered or dropped altogether.
A report from Hindenburg indicated that the death of the deal – which would come with a US$1 billion break fee – would effectively halve Twitter’s shares.
“Musk’s disclosure of his initial Twitter position preceded a broad meltdown in tech stocks. As of this writing, the Nasdaq composite has plummeted 17.6% since the closing price prior to Musk’s disclosure of his initial 9.2% stake on April 4,” Hindenburg said in the report.
“We believe that if Elon Musk’s bid for Twitter disappeared tomorrow, Twitter’s equity would fall by 50% from current levels. Consequently, we see a significant risk that the deal gets repriced lower.”
Pacific tensions continue to rise
Australian officials with the Department of Foreign Affairs and Trade (DFAT) say they have raised “serious concerns” about China’s new security pact with Solomon Islands during virtual talks held with Beijing last Friday.
The ABC was told that the department's most senior diplomats did not participate, including the Head of the Office of the Pacific, Ewen McDonald.
In a statement, the department said the officials "raised directly with their Chinese Ministry of Foreign Affairs counterparts Australia's serious concerns about the Solomon Islands-China security agreement, the lack of transparency and its implications for continuing regional security and stability".
Regional stability is certainly a hot topic this year, with unrest in Sri Lanka growing despite the resignation of Prime Minister Mahinda Rajapaksa just hours after conflict broke out in Colombo.
The ancestral home of the Rajapaksa family was set ablaze in the southern city of Hambantota, with multiple attacks on houses and election offices of other politicians reported.
A police spokesperson announced that ruling party member Amarakeerthi Athukorale and his bodyguard were killed in Nittambuwa after the car they were travelling in was intercepted by an angry crowd.
Three people were hospitalised due to gunshot wounds from shots fired from the politician’s vehicle, the spokesperson said.
Protests have been largely peaceful elsewhere in the country, prompted by prolonged power outages, shortages of essential goods, fuel and medicines.
At this stage, the Prime Minister and all cabinet members have stepped down, with continued calls for the Sri Lankan President, Gotabaya Rajapaksa (brother of former Prime Minister Mahinda Rajapaksa) to do the same.
Outside the Prime Minister's residence, Osha De Silva was among the hundreds of protesters celebrating his resignation but also told the ABC she wanted the President to step down.
"The Rajapaksa regime is corrupt," Ms Silva said, clasping a national flag with both hands.
In the Philippines, a previously ousted dynasty is re-emerging, riding a surge of social media-driven support driven by presidential candidate – and son of former dictator of the same name – Ferdinand Marcos’ celebrity-like status.
The unofficial tally has tapped Marcos as the next leader of the Philippines, having already surpassed the 27.5 million votes needed for a majority.
In a campaign reminiscent of Trump in 2016, Marcos ran on a campaign of “unity” bereft of any real policy platform. His presidency will likely follow in the same vein as former President Rodrigo Duterte’s, who became internationally infamous for his brutal strongman approach.
Alex Holmes, an economist with Capital Economics, said the victory "puts Marcos in a powerful position".
"Given his family background and his chequered political career to date, there are concerns among investors that his election will fuel corruption, nepotism and poor governance," he said.
"The incoming president is also keen to pursue closer ties with China … courting China would likely involve a trade-off in relations with the Philippines' traditional ally, the US."
On the small cap front
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