Commodity prices have lifted across the board with both iron ore and copper running to 7-year highs and a strong recovery for oil prices. This has seen ASX mining shares including BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) delivering market leading returns. 

However, the Lynas Rare Earths Ltd (ASX: LYC) share price triumphs over its ASX 200 mining peers after soaring more than 30% in November. The Lynas share price is now up 77% year to date and more than 7% in December. 

Rare earth prices running to record highs 

Rare earth elements are a group of 17 metals, with China holding about 50% of the world’s economic resource. Lynas primarily produces the rare earth element, neodymium-praseodymium (NdPr). NdPr prices have soared in recent weeks to an 8-year high of CNY$635,000 (A$130,700) per tonne. The commodity dipped as low as CNY$307,000 (A$63, 200) in 2016 and bounced off a low of CNY$350,000 (A$72,050) in April 2020. 

Lynas advises that a full assessment of global rare earths demand will not be possible until the global COVID-19 situation is more stable. However, positive news continues to support the magnet market. The European Union (EU) recently decided to accelerate the decarbonisation of its economy, now targeting a 60% reduction in emissions by 2030 instead of the 40% previously targeted.

With road transportation responsible for more than 20% of CO2 emissions in the EU, this acceleration is expected to translate into a faster penetration of electric and hybrid vehicles. 

Lynas to expand production and footprint 

Lynas has selected Kalgoorlie as the location for its new rare earths processing facility. The Western Australia Government awarded the project ‘lead agency’ status, with a ‘major project’ status awarded by the Australian Government. The major project status formally recognises the significance of a project to the Australian economy with extra project support and streamlined project state and territory approvals. 

As announced on 27 July 2020, Lynas also signed a contract with the United States Department of Defence for Phase 1 work on a proposed US-based heavy rare earth separation facility. The asset is intended to provide an expanded product suite as well as the only source of separated heavy rare earths outside China. The facility will be using material sourced from the Lynas mine in Mt Weld, Western Australia. 

At the time of writing, the Lynas share price has increased 1.5% to $4.08 in trading today.

More reading

• The Lynas share price (ASX:LYC) rose 34% in November. Here’s why
• Why the Lynas (ASX:LYC) share price just hit a 52-week high
• ASX 200 events this week that could move the market

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why the Lynas (ASX:LYC) share price is still running hot appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/2LfzdRJ

The OceanaGold Corp (ASX: OGC) share price has surged after the gold producer announced the Philippines Government has agreed to finalise the renewal of its Didipio gold mine contract. At the time of writing, the OceanaGold share price has climbed by 33.16% to $2.53.

Why the OceanaGold share price surged on the news

OceanaGold has been the operator of the Didipio gold mine in the Philippines since 2013, a site which is 270km north of Manila.

The company has been operating the mine under a ‘Financial or Technical Assistance Agreement (FTAA)’ contract. In July 2019, the agreement was subject to a temporary order issued by the provincial governor to restrain activities of the mine, pending renewal of the FTAA contract.

The dispute was over the location of the mine, which was claimed by the indigenous people of the area as ancestral grounds.

The OceanaGold share price is today rocketing on news the company has been granted a Certification of Non-Overlap (CNO). This states that the FTAA area is outside the ancestral domain of the Indigenous Cultural Communities.

OceanaGold today advised its FTAA contract has strong endorsement from the residents in the local communities around the Didipio mine, including the indigenous peoples.

The company further reported it will continue engaging with the national government with the goal of finalising the FTAA renewal. 

OceanaGold also announced in today’s release that as “a contractor of the Philippines Government and a responsible multinational miner, the company is ready and waiting to restart the Didipio operations and to continue contributing to the Philippines’ post-COVID-19 recovery.”

How has OceanaGold performed in 2020?

Prior to the market update, the OceanaGold share price had lost around 30% of its value in 2020. Following today’s movement, however, OceanaGold shares are now down just 9% in year-to-date trading. Despite today’s gains, this still leaves the company’s share price a long way off its 52-week high of $4.29.

OceanaGold has, however, been making progress recently.

Just last week, the company announced it was given permits by the New Zealand Government. These related to OceanaGold’s Golden Point Underground Mine, Deepdell North Stage III open pit extension and Frasers West expansion. 

The company advised these permits would allow it to proceed with the development of underground mining opportunities in New Zealand, and to extend the mine life of its Macraes operation all the way to 2028.

Based on the current OceanaGold share price, the company commands a market capitalisation of $134 million.

More reading

• Watch out! ASX IPO boom may sink the ASX bull market in 2021
• The scariest thing in Boeing’s 10-year forecast
• Why Bapcor, Event, Money3, & Tyro shares are dropping lower
• The Etherstack (ASX:ESK) share price is soaring 10% higher today. Here’s why.
• The Nuix (ASX:NXL) share price rocketed a further 37% higher today

Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post OceanaGold (ASX:OGC) share price shoots up 33% today. Here’s why appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3mQFqBv

ASX investors are celebrating the spate of successful floats on the ASX recently as a sign that the bull run is alive and healthy.

The Nuix Ltd (ASX: NXL) share price and the Cashrewards Ord Shs (ASX: CRW) share price are among examples of the latest initial public offerings (IPOs) that are trading well above their issue price.

Other examples include the Booktopia Group Ltd (ASX: BKG) share price and the Maas Group Holdings Ltd (ASX: MGH) share price.

Strong ASX IPO market a danger sign for bulls

Who cares that the doomsayers ringing the warning bells as the S&P/ASX 200 Index (Index:^AXJO) kicked off the week with strong gains? The buoyant IPO market gives confidence to the bulls that the party will last long past New Year’s Day.

But it might be a case of be careful for what you wish for. The level of IPOs and capital raisings could be the proverbial canary in the coalmine for equities, reported Bloomberg.

The report found a strong correlation between share market performance and the demand and supply of shares.

Demand and supply of ASX shares

IPOs and capital raisings increase the supply of shares as companies sell equity to shareholders. Inversely, ASX stocks that undertake share buybacks and those that are acquired remove the supply of shares on market.

The IPO party isn’t confined to Australia. The number of new floats in the US is also high with the likes of Snowflake Inc (NYSE: SNOW) and Warner Music Group Corp (NASDAQ: WMG).

While listed US companies typically back-back more shares than they sell, Bloomberg found that 2020 is different.

Capital raisings add to supply glut

The supply of shares isn’t only coming from IPOs. Companies most battered by COVID‐19, such as travel stocks and airlines, have been frantically selling shares to beef up their balance sheets.

US-listed companies have announced plans to raise about US$510 billion through initial and secondary share offerings this year. That’s 50% higher than a year ago, according to data from EPFR that’s reported by Bloomberg.

“For the first time since the 2009 crisis year, that matches the amount that companies announced they’d remove via buybacks and takeovers,” noted Bloomberg.

“For context, an average of $3 was bought back for every $1 raised over the past decade.”

Impact of excess ASX shares on issue

Why should investors care? Over the past 20 years to 2015, listed companies boosted net equity demand in 15 different years. Twelve of those 15 years saw the S&P 500 rise, a study by EPFR showed.

On the flipside, in the five years when supply of shares increased, the equity benchmark fell 60% of the time.

If the demand and supply doesn’t balance out better in 2021, the market bulls could be in for a rude shock.

The study may have been undertaken in the US, but I won’t be surprised if the ASX follows a similar pattern. After all, our market has always walked in the shadow of its US counterparts.

More reading

• The Nuix (ASX:NXL) share price rocketed a further 37% higher today
• After record breaking ASX share price rallies, what next in 2021?
• ASX 200 up 0.7%: Metcash impresses, BHP & Fortescue storm higher, Xero given buy rating
• Why Fortescue, Metcash, Nuix, & Xero shares are storming higher
• Why ASX iron ore stocks are set to rally today

Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Snowflake Inc. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Watch out! ASX IPO boom may sink the ASX bull market in 2021 appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/36OXaHV

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Boeing (NYSE: BA) issued its annual forecast for the commercial jet market in October. Not surprisingly, the aerospace giant reduced its estimate for global aircraft deliveries over the next 20 years – and especially for the current decade – relative to its 2019 outlook.

Despite slashing its long-term forecast, Boeing still may be overestimating the level of aircraft demand between 2020 and 2029. However, the scariest thing in its updated outlook is that even if its demand forecast is accurate, Boeing has virtually no path to getting back to pre-pandemic production levels during the current decade.

What the forecast says

Boeing estimates that manufacturers will deliver 18,350 new aircraft between 2020 and 2029, including 1,240 regional jets: a market segment that Boeing and Airbus (OTC: EADSY) don’t participate in. That puts the estimated addressable market for Boeing and its chief rival at 17,110 aircraft over the 10-year forecast period.

Unsurprisingly, Boeing expects single-aisle mainline jets (like the Boeing 737 MAX) to continue to account for the vast majority of demand, with 13,570 deliveries between 2020 and 2029. Wide-body passenger jets and freighters represent the other 3,540 projected deliveries.

Most of these deliveries are spoken for

The scary thing for Boeing is that most of these projected deliveries have already been sold – and mostly not by Boeing. This is particularly true for narrow-bodies: the high-volume segment of the market.

In the first 10 months of 2020, Airbus delivered 355 single-aisle jets. It ended October with an enormous backlog of 6,517 unfilled narrow-body orders across its A220 and A320 families. Airbus’ 2020 deliveries and current firm orders account for 51% of what Boeing projects will be delivered over the entire decade in the single-aisle market. Meanwhile, due to the 737 MAX grounding, Boeing has only delivered 13 narrow-bodies year to date (mainly military variants). Its backlog for the 737 family – its only entry in the single-aisle market – totals 3,365 orders.

Furthermore, while Boeing and Airbus dominate the commercial jet market, they aren’t the only players. Russia’s Irkut had 175 firm orders for its MC-21 jet as of September. Meanwhile, China’s COMAC claims to have 815 orders for its C919 jet, although only around 300 of those appear to be firm orders. Both new models had their first flights in May 2017, and both manufacturers expect to begin deliveries in late 2021, although it’s certainly possible that the timeline will slip to 2022.

In short, more than 10,700 single-aisle jets have been delivered in 2020 or are on firm order today. The 737 MAX accounts for less than a third of that figure. Meanwhile, fewer than 3,000 additional single-aisle jets would need to be ordered to meet the market’s projected demand through 2029.

Unless Boeing secures the lion’s share of those orders – which would mark a big turnaround from recent history – it is virtually locked into its current position as a distant No. 2 in the most important part of the commercial jet market.

To be fair, Boeing is in better shape for wide-bodies, where it still has leading market share. It has delivered 98 wide-bodies this year – including passenger, freighter, and military variants – compared to just 58 deliveries for Airbus. Boeing ended October with 910 outstanding firm wide-body orders, versus Airbus’ 860. However, wide-bodies (including freighters) will account for just 20% of aircraft deliveries this decade, according to Boeing’s forecast. Moreover, that projection could still be too generous.

A new normal for Boeing

In 2018, Boeing delivered 806 commercial jets: 580 737s and 226 wide-bodies. Meanwhile, Airbus delivered 800 jets: 646 narrow-bodies and 154 wide-bodies.

Airbus’ current narrow-body backlog equates to an average of more than 700 annual deliveries between 2021 and 2029: more than what it delivered in 2018. Boeing’s current backlog wouldn’t even support an average of 400 annual 737 deliveries. Since there are potentially fewer than 3,000 additional orders up for grabs for narrow-body deliveries this decade, the aircraft manufacturer would need to capture a disproportionate share of that business to get back to building nearly 600 737s annually.

Getting even 50% of the incremental order volume could be challenging. Airbus’ A220 is smaller than the smallest 737 MAX model, giving it lower trip costs, while the A321XLR has significantly more range than any 737 MAX. Thus, Airbus addresses market segments that Boeing doesn’t participate in today. Additionally, Irkut and COMAC are virtually guaranteed to capture additional orders because of their status as national champions. COMAC in particular is poised to tap into the enormous Chinese airline market.

As for wide-bodies, even if Boeing’s forecast is accurate and it maintains a modest market share advantage, annual deliveries would remain firmly below its 2018 tally. Barring some unexpected event that causes a rapid shift in the market share landscape, Boeing will struggle to make a full recovery from the double-whammy of the 737 MAX grounding and COVID-19 pandemic.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Amaero (ASX:3DA) shares in trading halt after Boeing order
• 10 most searched shares in Australia
• Here are the US shares that CommSec customers are buying
• This cheap ASX share is supplying US giants: fundie

Adam Levine-Weinberg has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post The scariest thing in Boeing’s 10-year forecast appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

from The Motley Fool Australia https://ift.tt/3mQVAuG

In afternoon trade the S&P/ASX 200 Index (ASX: XJO) is on course to start the week with a gain. At the time of writing, the benchmark index is up 0.3% to 6,654.9 points.

Four shares that have failed to follow the market higher today are listed below. Here’s why they are dropping lower:

Bapcor Ltd (ASX: BAP)

The Bapcor share price is down 3.5% to $6.84 despite there being no news out of the auto parts retailer. This latest decline means the Bapcor share price is now down a disappointing 16% since this time last month. Investors appear concerned that the COVID tailwinds it was experiencing may now ease given the prospect of vaccines being released in the near future. These tailwinds include an increase in domestic tourism and increased vehicle usage during the pandemic to avoid public transport.

Event Hospitality and Entertainment Ltd (ASX: EVT)

The Event share price has fallen 4% to $10.48 after providing an update on the sale of its Cinestar business. That update revealed that Vue International is seeking to renegotiate the terms of the acquisition of the Cinestar business. Vue also advised that it has stopped the divestment process of some of its sites. These divestments are required by regulators to complete the Cinestar purchase.

Money3 Corporation Limited (ASX: MNY)

The Money3 share price is down 2.5% to $2.89 after completing a capital raising. The consumer finance provider raised $45 million at an 8.8% discount of $2.70. It will now push ahead with a share purchase plan to raise a further $7 million. The proceeds will be used to fund the acquisition of Automotive Financial Services and loan book growth in Australia and New Zealand.

Tyro Payments Ltd (ASX: TYR)

The Tyro share price is down 4.5% to $3.34. This is despite the release of a positive weekly trading update this morning. According to the release, the payments company processed $366 million of payments during the first four days of December. This represents a 16% increase on the prior corresponding period. During November, payment volumes were up 13% to $2.159 billion.

More reading

• Event Hospitality (ASX:EVT) share price falls on Cinestar update
• Got money to invest? Here are 3 ASX dividend shares to buy
• 2 turnaround ASX shares to buy
• Why the Afterpay (ASX:APT) share price and these ASX stocks could get a boost next week
• 2 turnaround ASX shares rated as buys by leading fundie

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Tyro Payments. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why Bapcor, Event, Money3, & Tyro shares are dropping lower appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/33OXfsW

The Etherstack PLC (ASX: ESK) share price is soaring higher today on news the company’s subsidiary, Etherstack Pty Ltd scored a major contract win with the Australian Department of Defence. At the time of writing, the Etherstack share price is up 9.3% to 71 cents.

Etherstack operates in wireless communications technologies for customers in the public safety, defence, utilities and mining industries. The company’s protocol stacks are exported globally and licensed by leading radio manufacturers.

Its Australian solutions partner and subsidiary, Auria Wireless, manufactures complete digital radio networks using Etherstack software.

What’s driving the Etherstack share price up?

The Etherstack share price shot up today after the company advised that it has entered a technology licensing contract with the Australian Department of Defence. The local deal bolsters the company’s track record of delivering its products to allied defence organisations and radio manufactures in Europe and North America.

Under the agreement, Etherstack will supply its technology and associated delivery services to the Australian government. The first stage of the proposed multiple work packages is estimated to be worth $4.1 million. Most of the revenue from the initial phase will be included into the company’s FY21 report.

In light of this, Etherstack expects a modest contribution to the current financial year ending 31 December.

While future work packages are not guaranteed, the company expects to meet its performance-based targets, thereby leading to continued business.

Management commentary

Etherstack CEO David Deacon welcomed the news, saying:

This program builds upon existing Etherstack technology and creates a significant Australian export opportunity to both other nations and international military equipment manufacturers.

The supplied solution is repeatable and the first of its kind that will be compliant to a specific military standard. Etherstack expects interest from existing and new radio manufacturer customers internationally, as well as other nations, and will attempt to rapidly capitalise through licensing the solution to other countries.

Etherstack share price summary

If investors picked up Etherstack shares at 12 cents before its Samsung partnership announcement in June, shareholders would be sitting on gains of 500%. The Etherstack share price reached an all-time high $3.70 on 1 July, the day after the Samsung deal.

However, investors quickly took profit off the table, sending its share price lower again, to hover between 60 and 70 cents.

More reading

• The Nuix (ASX:NXL) share price rocketed a further 37% higher today
• Why the Sky Network (ASX:SKT) share price is marching higher today
• RBA gives BNPL another blessing
• After record breaking ASX share price rallies, what next in 2021?
• Control Bionics (ASX:CBL) share price doubles after successful IPO

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post The Etherstack (ASX:ESK) share price is soaring 10% higher today. Here’s why. appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/2JPXRrj

The Nuix Limited (ASX: NXL) share price has continued its remarkable post-IPO rise and zoomed higher again on Monday.

In fact, at one stage today the analytics software provider’s shares jumped a massive 37% to a record high of $10.95.

When its shares hit that level, it meant they were up over 105% from their IPO listing price of $5.31.

The Nuix share price has since given back the majority of those gains but is still up a sizeable 14% to $9.15 at the time of writing.

What is Nuix?

Nuix is a leading investigative analytics and intelligence software provider. This software has been used by customers around the world to process, normalise, index, enrich, and analyse data from a multitude of different sources.

This includes for a number of important investigations such as the Panama Papers, the Banking Royal Commission, organised crime rings, corporate scandals, and terrorist activities.

The company’s customer base includes government agencies, regulators, corporations and professional services firms.

Why has it undertaken an IPO?

Nuix launched its IPO this year in order to raise funds to fuel its growth plans and to allow shareholders to realise a portion of their investment.

Nuix Chairman, Jeff Bleich, explained: “The purpose of the offer is to broaden Nuix’s shareholder base and provide a liquid market for its shares; repay existing indebtedness and provide funding and financial flexibility to support Nuix’s growth strategy and future growth opportunities; provide Nuix with the benefits of an increased brand profile that may arise from being a publicly listed entity; and provide existing securityholders with an opportunity to realise a portion of their investment in Nuix and fund the cancellation of options exercisable before completion of the offer.”

In respect to its growth strategy, the company is seeking to expand its presence across geographies and in targeted industry verticals. It aims to do this by winning new customers, employing an industry‑centric “land and expand” strategy across industry verticals, continued investment in functionality of the Nuix platform, and improvements in overall operating efficiency and extracting potential benefits of increased scale.

Management also believes that growth can be accelerated by focusing on building a network of strategic partners to provide complementary delivery and market expansion capabilities, as well as through a considered approach to value accretive mergers and acquisitions.

In FY 2021, the company is forecasting total revenue of $193.5 million, gross profit of $166.7 million, and EBITDA of $63.6 million. This represents year on year growth of 10%, 7.4%, and 14.6%, respectively.

More reading

• Why Fortescue, Metcash, Nuix, & Xero shares are storming higher
• ASX 200 goes up on Friday
• The Nuix (ASX:NXL) share price zoomed 69% higher following its IPO
• $1.7 billion Aussie tech company finally lists on ASX

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post The Nuix (ASX:NXL) share price rocketed a further 37% higher today appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3gi6FCs

The Sky Network Television Limited (ASX: SKT) share price is lifting today after the company announced a renewed multi-year deal with Discovery. At the time of writing, the Sky share price is up 3.2% at 16 cents. In comparison, the All Ordinaries Index (ASX: XAO) is up 0.7% to 6,915 points.

Discovery is a popular American multinational television network that provides viewers with real-life entertainment, including factual and lifestyle shows.

Renewed partnership

According to the announcement, Sky has extended its partnership with Discovery under a multi-year agreement.

Although no exact terms have been released, Sky said customers would be offered a raft of well-known programs. These include Discovery Channel, TLC, Discovery Turbo, Living, Food Network, Animal Planet, and the newly launched channel, Investigation Discovery.

In addition, Video on Demand (VOD) rights will be expanded for Sky Go, Sky On Demand, and Neon. And the Discovery Channel will be included in its starter package to attract new customers.

Furthermore, Sky said Investigation Discovery would debut in New Zealand under the entertainment package in early 2021.

What did management say?

Commenting on the partnership extension, Sky chief executive Sophie Moloney said:

We know our customers love Discovery’s premium programming, and we are delighted to continue our 26-year partnership through a renewed deal that responds to our customers’ needs and the content landscape in New Zealand.

New Zealanders are spoiled for choice when it comes to content. Our partnerships with the world’s leading content creators makes it easy for Sky customers to enjoy the best and broadest range of storytelling; all in one place. We are excited to deepen our offering of Discovery’s premium content by welcoming Investigation Discovery to New Zealand in 2021.

About the Sky share price

The Sky share price has fallen dramatically in the past 5 years. After reaching the $6 mark in 2015, the Sky share price is now swapping hands for 16 cents, a 98% wipe out of its prior value. 

More reading

• Sky Network (ASX:SKT) share price falls following significant board change
• Sky Network (ASX:SKT) share price shoots 6% higher on upgraded guidance

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why the Sky Network (ASX:SKT) share price is marching higher today appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3giCnzn

From the moment the buy now, pay later (BNPL) concept was born, it has faced criticism and the threat of possible regulation. The sector that BNPL aims to supplement (or perhaps replace), credit provision, is one of the most regulated industries in the country.

Under current laws, not every Tom, Jane or Harry is allowed to offer credit cards or personal loans to anyone they please. You need a credit license, regulatory approval and the ability to satisfy a raft of other compliance measures.

But the same cannot be said of BNPL products. The companies that offer BNPL services, such as Afterpay Ltd (ASX: APT), have long argued they shouldn’t be subject to the same laws and regulations as traditional credit providers. That’s namely because BNPL products usually don’t charge interest. And it is interest (which has a nasty habit of compounding over time) that normally gets debtors into strife. Or so the argument goes.

Until now, BNPL providers have managed to keep this status quo going, despite those such as Commonwealth Bank of Australia (ASX: CBA) CEO Matt Comyn telling investors last month he believes BNPL regulation to be ‘inevitable’.

However, reporting from the Australian Financial Review (AFR) this morning has put another feather in the caps of Afterpay and the wider BNPL sector.

RBA gives BNPL another green light

The AFR reports that Reserve Bank of Australia (RBA) governor Dr. Philip Lowe “has given the strongest indication yet” that buy now, pay later providers will be able to continue insisting stores and merchants do not pass their costs on to customers. For now, at least.

According to the report, Dr Lowe gave a speech at an AusPayNet event. He laid out the RBA’s position on the “no surcharge” restrictions: “The board’s preliminary view is that the BNPL operators in Australia have not yet reached the point where it is clear that the costs arising from the no-surcharge rule outweigh the potential benefits in terms of innovation”.

Dr. Lowe went on to state that, “even the largest BNPL providers still account for a small proportion of total consumer payments in Australia, notwithstanding their rapid growth”. He noted only around 1% of the total payments volume in the country go through BNPL channels.

Lowe also points out that “the increasing array of BNPL providers is resulting in competitive pressure that could put downward pressure on merchant costs”.

As such, Dr. Lowe says the RBA will only step-up regulation in the buy now, pay later sector when “it is clear that doing so is in the public interest”. And right now, “the board is unlikely to conclude that the BNPL operators should be required to remove their no-surcharge rules”.

More reading

• How to get a passive income of $50,000 per year from ASX dividend shares
• Top brokers name 3 ASX shares to sell next week
• Is the Afterpay (ASX:APT) share price in the buy zone after its update?
• 5 things to watch on the ASX 200 on Friday
• ASX 200 rises on Thursday

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post RBA gives BNPL another blessing appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/2InwAfy

We kick off the first Monday of the last month of 2020 with a spot of good news.

Today, at time of writing, the S&P/ASX 200 Index (ASX: XJO) is up 1.1%.

Yes, that’s nice. But that’s not the good news.

The good news is that this morning’s strong start puts the ASX 200 in the green for 2020. It’s currently up 0.3% since the opening bell rang on 2 January.

Now that may not last the day. The last time the average share price of Australia’s top 200 listed companies closed up for the year was on 26 February.

That was just 3 trading days into the horror selloff that saw the ASX 200 crash 36.5% from its 20 February all-time high to its 23 March 2020 low.

It’s now up more than 47% from that low. And less than 7% off the all-time 20 February highs.

Both the size and the speed of the market’s fall and rebound smashed any previous records.

And it’s not just the ASX. Most global share markets have experienced similar record-breaking moves. And some, like US share markets, are trading back at record levels.

On Friday, the Dow Jones Industrial Average (INDEXDJX: .DJI), the S&P 500 Index (INDEXSP: .INX), and the Nasdaq Composite (INDEXNASDAQ: .IXIC) all closed at new all-time highs. The gains came with hopes the long-awaited, near trillion dollar US stimulus package will soon get the green light.

The Nasdaq has posted a truly stellar year. The tech-heavy index is up 37% since 2 January and up 82% from its 23 March low.

That’s been 2020 for you.

But with the clock ticking on the old year, what can investors expect from share markets in 2021?

Proceed with caution

The forecasts among leading analysts and fund managers ranges from cautious to cautiously optimistic.

Bank of America Corp (NYSE: BAC) falls on the cautious side of that equation. The Bank of America’s Bull & Bear Indicator has leapt from 4.7 to 5.8, on a scale of 0–10.

As the Australian Financial Review (AFR) reports, the bank is concerned about investors’ acceleration “toward extreme bullishness” giving it a “code red” designation.

According to Bank of America, the US$115 billion (A$155 billion) invested into stocks over the past 4 weeks set a new record. Meanwhile, the US$9 billion outflow from gold, a classic haven asset, over the past 3 weeks sets another new record.

Adding to the bank’s cautious outlook, it stated fund managers’ cash holdings had dropped to 4.1%, approaching what it views as a “sell signal”.

So what should investors do in the months ahead? According to Bank of America (quoted by AFR):

If risk asset correction occurs [in the] next 3-6 weeks, investors should buy the dip in cyclical value; if [a] correction [takes place] in 3-6 months, investors should buy defensive growth.

Buying opportunities ahead

US and Australian share markets have rallied strongly following the pandemic-led selloff despite a wave of share offerings to raise capital.

As Bloomberg reports, data compiled by Informa Financial Intelligence’s EPFR unit show companies announced plans to raise some US$510 billion via initial and secondary share offerings in 2020.

That’s up 50% from 2019 and it’s equal to the amount companies plan to remove with share buybacks and takeovers this year. By comparison, over the past 10 years companies have bought back an average 3 times more than they’ve issued.

Buybacks, as you’re likely aware, tend to drive up share prices while share offerings tend to be dilutive.

Winston Chua, an analyst with EPFR, explains the rationale behind the surge in share offerings (quoted by Bloomberg):

Obviously when the market is at an all-time high, you want to issue shares now, because the shares are worth a lot more than they would be if the market was tanking. Looking at the market broadly, companies are not being supportive of share prices.

While all the share offerings may not be supportive of share prices today, Mike Bailey, director of research at FBB Capital Partners, points out this looks likely to change in 2021 (quoted by Bloomberg):

There’s a lack of an incremental buyer out there, so that’s a negative, and it still signals some caution as companies let the cash accumulate. The flip side is, you are building more pressure for companies to really drop the hammer and start to buy back stock next year and into 2022.

Brian Rauscher, Fundstrat Global’s head of global portfolio strategy, also sees buying opportunities ahead, recommending a move from value shares over growth (quoted by the AFR):

Any dips in the broad equity market that may occur in the coming weeks based on worsening COVID cases and short-term weak economic data should be viewed as buying opportunities.

2021 is just a few weeks away. And while there will be plenty of risks in the share markets in the year ahead, there will also be plenty of opportunities to make money.

More reading

• ASX 200 up 0.7%: Metcash impresses, BHP & Fortescue storm higher, Xero given buy rating
• Why ASX iron ore stocks are set to rally today
• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 next week
• These were the worst performing ASX 200 shares last week

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post After record breaking ASX share price rallies, what next in 2021? appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/36QEO9w