Tag: Motley Fool

The two ASX growth shares in this article could be the way to go according to some of the leading analysts in Australia.

These are businesses that are growing revenue quickly, have growing profit margins and have long-term growth planned. They are utilising digital business models to serve their customers and consumers.

Here are two ASX growth shares liked by experts:

Airtasker Ltd (ASX: ART)

Airtasker is currently rated as a buy by the broker Morgans, with a price target of $1.25. That suggests a potential doubling of the Airtasker share price over the next 12 months.

What does Airtasker do? It provides a platform that connects people or businesses that want work doing with people willing to do that work (for a fee). Airtasker takes a small cut of that transaction value.

The gross marketplace volume (GMV) of Airtasker is growing at a double-digit rate. Despite lockdowns in its two major markets of Sydney and Melbourne during the first half of FY22, Airtasker saw GMV increase by 15.5% year on year to $83.6 million.

After the lockdowns ended, Airtasker saw a “strong rebound” in the second quarter with GMV up 39% quarter on quarter to $48.6 million. It managed to achieve a record weekly GMV run rate of $4.5 million in December 2021.

It has a very high gross profit margin of 93%.

Not only is the number of tasks increasing on the ASX growth share’s platform, but the average task price is also going up. In December, the average task price reached $255 (up 24% year on year).

But the company is also targeting the much larger markets of the US and UK. In Australia, Airtasker says it has achieved a market share of 0.3% for the local service industries. If it achieved the same 0.3% market share in the UK and USA, that would translate to annual GMV of $210 million and $1.5 billion, respectively.

In the second quarter of FY22, Airtasker said task growth was 71% quarter on quarter in the US. Turning to the UK, second-quarter GMV grew by 121% year on year.

Adore Beauty Group Ltd (ASX: ABY)

Adore Beauty is currently rated as a buy by Morgan Stanley, with a price target of $4. That implies a potential doubling of the Adore Beauty share price over the next year.

This ASX growth share is the leading e-commerce platform for beauty products in Australia. It sells almost 12,000 products from over 270 brands.

The company has pointed out many times that it continues to benefit from the structural shift to online shopping. It is also seeing new customer growth, high levels of retention and growing brand awareness. All of these factors “strongly positions the company for future growth”.

Adore Beauty continues to see double-digit revenue growth. In the first half of FY22, revenue rose 18% to $113.1 million. Active customers rose 13%, whilst returning customers increased 56%. Annual revenue per active customer increased 5% year on year to $224.

The gross profit margin was 33.1%, an increase of 0.6 percentage points thanks to product margin expansion and brand funding.

The company is planning on launching its first private label brand. It’s also working on other priorities including its mobile app, loyalty and adjacency expansion. This ASX growth share operates in an $11 billion sector that is growing, and Adore Beauty is growing its market share within that.

In the first six weeks of the second half of FY22, it said that revenue had grown by another 14%.

The post 2 ASX growth shares experts think have exciting futures appeared first on The Motley Fool Australia.

More reading

• 135% upside? Adore Beauty (ASX:ABY) insiders pounce on beaten-up shares
• 3 small cap ASX shares tipped for big things by analysts
• 3 buy-rated ASX growth shares analysts are recommending
• 3 promising small cap ASX shares to watch
• 2 compelling ASX shares expecting big growth this decade

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Adore Beauty Group Limited and Airtasker Limited. The Motley Fool Australia has recommended Adore Beauty Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/EeGR3Jb

The fund manager Wilson Asset Management (WAM) has recently identified two top small cap ASX shares that it owns in its portfolio that could be ideas.

WAM operates several listed investment companies (LICs). Some focus on larger companies like WAM Leaders Ltd (ASX: WLE) and WAM Capital Limited (ASX: WAM).

There’s also one called WAM Microcap Limited (ASX: WMI) which targets small cap ASX shares with a market capitalisation under $300 million at the time of acquisition.

WAM says WAM Microcap targets the most exciting undervalued growth opportunities in the Australian microcap market.

The WAM Microcap portfolio has delivered gross returns (that’s before fees, expenses and taxes) of 21.7% per annum since inception in June 2017, which is superior to the S&P/ASX Small Ordinaries Accumulation Index average return of 9.3%.

These are the two small cap ASX shares that WAM outlined in its most recent monthly update:

Seven West Media Ltd (ASX: SWM)

Seven West is a media corporation business with a “market-leading” presence on content production across broadcast television, publishing and digital, according to WAM.

In February 2022, the company announced its financial result for the six months to 25 December 2021.

WAM noted that the small cap ASX share’s profit before significant items, net finance costs and tax from continuing operations was $204 million, up 34% compared to the prior year.

The fund manager said that the strong result was reflective of its television network Seven returning to the number one position in ratings and the solid growth of the television advertising market.

Wilson Asset Management believes that Seven West Media’s future growth runway will be driven by its strong balance sheet and its potential expansion into subscription streaming services.

Swoop Holdings Ltd (ASX: SWP)

Swoop is an ASX share that provides national internet and telecommunications to wholesale business and residential customers with a focus on fibre and fixed wireless infrastructure.

The fund manager noted that in February 2022, the company reported its half-year result to 31 December 2021, which showed revenue growth of 62% as well as a 130% increase in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) compared to last year.

Swoop finalised three acquisitions which will add to earnings with a further two acquisitions to be completed in the coming months.

At the end of the half-year period, the small cap ASX share had $44.6 million of cash and a $30 million loan facility which is close to finalising.

WAM noted that the Swoop share price didn’t do well in February. It dropped 9%. Swoop shares are down another 11.7% since the start of March 2022.

However, the fund manager is confident about the future because of the organic growth profile of the business, with additional potential upside coming from acquisitions.

The post Top fund manager rates these 2 small cap ASX shares as buys appeared first on The Motley Fool Australia.

More reading

• This ASX telco just reported 62% revenue growth
• 2 compelling small cap ASX shares rated as buys

Motley Fool contributor Tristan Harrison owns WAM MICRO FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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.

from The Motley Fool Australia https://ift.tt/8ipvshe

On Tuesday, the S&P/ASX 200 Index (ASX: XJO) was out of form and tumbled lower. The benchmark index fell 0.7% to 7,097.4 points.

Will the market be able to bounce back from this on Wednesday? Here are five things to watch:

ASX 200 expected to rise

It looks set to be a better day for the Australian share market on Wednesday following a strong night in the US. According to the latest SPI futures, the ASX 200 is expected to open the day 30 points or 0.4% higher this morning. In late trade on Wall Street, the Dow Jones is up 1.8%, the S&P 500 is up 2.1%, and the Nasdaq is up a sizeable 2.8%.

Oil prices slump again

Energy producers such as Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) could have a difficult day after oil prices slumped further. According to Bloomberg, the WTI crude oil price is down 6.9% to US$95.94 a barrel and the Brent crude oil price has fallen 7.2% to US$99.23 a barrel. Easing supply concerns have been weighing on prices.

ANZ shares rated as a buy

The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price could be in the buy zone according to analysts at Goldman Sachs. This morning the broker has been looking over the banking sector and reiterated its buy rating and $30.84 price target on ANZ’s shares. Goldman believes the market’s view on major bank net interest margins seems too bearish given its view on rates.

Gold price sinks again

Gold miners Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a bad day after the gold price continued to fall. According to CNBC, the spot gold price is down 1.9% to US$1,923 an ounce. This has been driven by Russia-Ukraine talks and traders betting on US rate hikes coming sooner than expected.

Inghams goes ex-dividend

The Inghams Group Ltd (ASX: ING) share price is likely to trade lower this morning. This is because the poultry producer’s shares are due to trade ex-dividend this morning for its fully franked 6.5 cents per share interim dividend. Eligible shareholders can look forward to receiving this distribution next month on 7 April.

The post 5 things to watch on the ASX 200 on Wednesday appeared first on The Motley Fool Australia.

More reading

• Here’s how ANZ plans to keep ‘decision making fair’
• Why has the Coles (ASX:COL) share price rallied 7% in a month?
• Leading brokers name 3 ASX shares to sell today
• Why Chalice Mining, Santos, Yancoal, and Zip shares are dropping
• Why is the crude oil price tumbling and which ASX 200 shares are being impacted?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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.

from The Motley Fool Australia https://ift.tt/J9CFbN0

Investors that are looking for some new shares to buy might want to look at the blue chips listed below.

These three blue chip ASX 200 shares have been tipped to climb meaningfully higher from where they trade today. Here’s what you have to know about them:

CSL Limited (ASX: CSL)

The first blue chip for investors to look at is one of the world’s leading biotechnology companies. CSL comprises the CSL Behring and Seqirus businesses, which are leaders in their respective fields – plasma therapies and vaccines. The company is also aiming to acquire Vifor Pharma in a blockbuster deal that will expand its product portfolio and pipeline. All in all, this deal, its billion-dollar per annum spend on R&D, and improving plasma collections, appear to have positioned CSL well for long term growth.

Yesterday the team at Citi retained its buy rating and $335.00 price target on CSL’s shares. Its analysts believe that plasma collections will bounce back beyond pre-pandemic levels this year. Citi expects this to be a big boost to investor sentiment.

Goodman Group (ASX: GMG)

Another blue chip ASX 200 share that could be in the buy zone is Goodman. It is a global integrated commercial and industrial property company with a world class property portfolio. These properties have exposure to key growth markets such as ecommerce and are in high demand. Thanks to this strong demand and its lucrative development pipeline, Goodman has been tipped to continue its strong growth long into the future.

Citi is also positive on Goodman’s future. Its analysts currently have a buy rating and $29.50 price target on its shares. The broker recently stated that it expects Goodman to outperform its upgraded earnings guidance in FY 2022.

ResMed Inc. (ASX: RMD)

A final blue chip ASX 200 share to look at is ResMed. It is a sleep treatment focused medical device company which has been tipped to continue its stellar growth long into the future. This is thanks to its world class products, significant market opportunity, the growing prevalence of sleep disorders, and, as Morgans highlights, its “unique, patient-centric, connected-care digital platform that addresses the main pinch points across the healthcare value chain.”

It is partly because of the latter that Morgans is positive on the company and has an add rating and $40.46 price target on its shares.

The post 3 quality blue chip ASX 200 shares analysts are tipping as buys appeared first on The Motley Fool Australia.

More reading

• Why CSL (ASX: CSL) shares climbed on Monday
• Why CSL, Dicker Data, Elders, and Virtus Health shares are charging higher
• Leading brokers name 3 ASX shares to buy today
• ASX 200 (ASX:XJO) midday update: Elders jumps, Magellan and Zip tumble
• $20k invested in these ASX shares 10 years ago is now worth…

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

from The Motley Fool Australia https://ift.tt/ePJFOc0

Australia and New Zealand Banking Group Ltd (ASX: ANZ) has appointed a new customer fairness advisor.

ANZ shares climbed 0.41% on Tuesday, finishing at $26.69 at market close. The S&P/ASX 200 Financials Index (ASX: XFJ) also finished ahead today, up 0.99%. For perspective, the S&P/ASX 200 Index (ASX: XJO) fell 0.73%.

Let’s take a look at what ANZ announced on Tuesday.

New appointment

ANZ has appointed Evelyn Halls as its customer fairness advisor, the bank announced. Halls will report to the company’s CEO Shayne Elliott. Commenting on the appointment, Elliott said:

This is a crucial role for ANZ that we first established in 2016 and I’m confident Evelyn will build on the legacy of Colin Neave who served as ANZ’s inaugural Customer Fairness Advisor.

As ANZ’s services become even more digital, we’ll be particularly looking to Evelyn to help us use data responsibly and ensure our decision making is fair.

Halls recently served as lead ombudsman at the Australian Financial Complaints Authority. She has more than 25 years of experience in the legal and financial services sector.

In early March, ANZ also restructured its executive team to prepare for future growth. The retail and digital divisions of the bank have been combined, while a new commercial division has been created.

The ANZ share price also climbed yesterday amid concerns of rising inflation, as my Foolish colleague Sebastian reported.

The US Federal Reserve is due to meet this week when it is widely predicted interest rates will rise by 25 basis points, CNBC reported. The Australian Reserve Bank of Australia (RBA) often takes its lead from the US Federal Reserve, as my Foolish colleague Bernd has noted.

The other three of the Big 4 banks also finished higher on Tuesday. National Australia Bank Ltd (ASX: NAB) climbed 0.86%, Westpac Banking Corp (ASX: WBC) jumped 1.12%, while Commonwealth Bank of Australia (ASX: CBA) gained 1.75%. Macquarie Group Ltd (ASX: MQG) bucked the trend, finishing 0.44% lower.

ANZ on the ASX snapshot

The ANZ share price has shed 6.02% in the past 12 months but in the past week alone, it has jumped 6.76%.

In comparison, the benchmark financials index has leapt 7.26% in the past 12 months, gaining 7.47% in a week.

ANZ has a market capitalisation of about $74.8 billion based on its current share price.

The post Here’s how ANZ plans to keep ‘decision making fair’ appeared first on The Motley Fool Australia.

More reading

• Why ASX 200 bank shares are storming higher today
• The ANZ (ASX:ANZ) share price has toppled 16% in 15 years. Have the dividends been worth the pain?
• Brokers name 3 ASX shares to buy today
• Is the Westpac (ASX:WBC) share price the cheapest bank to buy right now?
• ANZ has the largest ASX big four bank dividend yield right now. What?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/9E2YOC7

The National Australia Bank Ltd (ASX: NAB) share price finished in the green on Tuesday.

NAB shares climbed 0.86% today, finishing at $30.64 at market close. For perspective, the S&P/ASX 200 Index (ASX: XJO) fell 0.73% today.

Let’s take a look at what is happening at NAB.

New sales targets

NAB is making headlines today amid a decision to bring back KPI [key performance indicator] sales targets for branch staff.

Internal documents reveal the bank is using the targets to sell credit cards, general insurance, and personal loans, The Age reported. Higher uptakes could lead to better earnings for the bank.

There are also targets for boosting home loan drawdowns, according to the ‘KPI Guide Performance Plans’ document seen by the publication. Bank staff reportedly hit their target if they can raise the drawdown by $39 to $60 million a year.

University of Sydney Business School senior lecturer Andrew Grant told the publication the sales targets could create a “cut-throat” culture.

In response to the reports, NAB said financial targets account for less than 20% of the performance of staff. NAB retail executive Krissie Jones added:

We regularly review our performance and reward frameworks so that they encourage the right behaviour to deliver good outcomes for customers

The S&P/ASX 200 Financials Index (ASX: XFJ) finished up 0.99% today. NAB makes up 22.1% of the total market cap of the financials sector on the ASX.

The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price climbed 0.41% today, Westpac Banking Corp (ASX: WBC) shares gained 1.12% while Commonwealth Bank of Australia (ASX: CBA) jumped 1.75%. Conversely, the Macquarie Group Ltd (ASX: MQG) share price dropped 0.44%.

NAB on the ASX recap

The NAB share price has rocketed 17% in the past 12 months, gaining 6% year to date.

In the past month, NAB shares have climbed 0.69% although they have jumped nearly 8% in the past week

NAB has a market capitalisation of about $99 billion based on its current share price.

The post ‘Cut-throat’: Why did NAB make headlines today? appeared first on The Motley Fool Australia.

More reading

• Why ASX 200 bank shares are storming higher today
• 2 buy-rated ASX 200 dividend shares with top yields
• Is the NAB (ASX:NAB) share price a buy? Top broker expects sector-leading earnings growth
• 2 excellent ASX dividend shares analysts rate as buys
• Is the Westpac (ASX:WBC) share price the cheapest bank to buy right now?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/ryg5bjD

The S&P/ASX 200 Index (ASX: XJO) had a pretty lousy day of trading this Tuesday. The ASX 200 ended up down by 0.73% and closed at just under 7,100 points. But no one seems to have told the Coles Group Ltd (ASX: COL) share price.

Coles shares had a corker of a day. The grocery giant finished up a healthy 1.14% at $17.71 a share. But what’s more interesting is that Coles is now up more than 7% in roughly the past month. Yes, between February 18 and today, Coles has gone from $16.55 a share to $17.71.

So what’s happened with this company recently?

Well, unfortunately, it’s not entirely clear.

But we can rule out the impact from Coles’ half-year earnings report. Although the report delivered what you could describe as a mixed bag, Coles shares were lower during the first few weeks of March than they were before the report was delivered on 22 February. So it doesn’t look like that’s made much of a lasting impression.

Why are investors flocking to the Coles share price?

So let’s consider what might have been on investors’ minds since then. The past few weeks have seen a renewed focus on inflation, which has been exacerbated by the high fuel prices that have come our way over the past week or two.

It has also seen some investors look for stability in light of the tragic war in Europe, and the global tensions that has caused.

So how does this relate to Coles? Well, Coles is arguably one of the most inflation-proof shares out there. We all need food, drinks, and household essentials, which is Coles’ bread and butter (no pun intended).

Thus, it’s fairly safe to say that most consumers will reluctantly accept price increases for these products. Thus, Coles can effectively pass on any inflationary effects to its customers without fear of losing them. This also makes Coles a fairly ‘defensive’ company by conventional logic, which in turn gives it a reputation for stability.

Also, Coles happens to be a strong ASX dividend share, one that managed to increase its dividend over the difficult years of 2020 and 2021. It currently offers a dividend yield of 3.44%, which comes fully franked.

Thus, it’s possible it’s for these reasons Coles shares have enjoyed some buying pressure over the past month or so. We can’t say for sure. But Coles certainly has a lot of qualities that arguably make it an attractive option in a more uncertain world.

At the last Coles share price, this ASX 200 grocer has a market capitalisation of $23.65 billion.

The post Why has the Coles (ASX:COL) share price rallied 7% in a month? appeared first on The Motley Fool Australia.

More reading

• Why is the Woodside (ASX:WPL) share price plunging today?
• ASX 200 (ASX:XJO) midday update: Uniti jumps on takeover speculation, Rio Tinto and Yancoal tumble
• Cash machines: 6 ASX 200 shares with the highest dividend yields right now
• 5 things to watch on the ASX 200 on Tuesday
• Hero to Xero? The Xero (ASX:XRO) share price is now down 36% in 2022

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

from The Motley Fool Australia https://ift.tt/5XNM2Py

The All Ordinaries Index (ASX: XAO) is tracked lower today and now sits less than 1% in the red at 7,356 points at market close. After clawing back gains over the previous week, the All Ords is still down more than 2% for the month.

But one All Ords share is overtaking the pack in 2022 and is currently well on the way to nudging past its record highs.

Shares in Hotel Property Investments Ltd (ASX: HPI) are surging higher in 2022 and are now sitting almost 3% in the green since trading restarted on January 4.

Why is the HPI share price soaring higher?

The company posted a robust set of interim results last month that saw funds from operations (FFO) printed at $19.5 million for the period ending 31 December 2021.

This meant the group affirmed its FY22 distribution per share (DPS) guidance of 20.5 cents per share, signifying a 6% gain year on year.

Net tangible assets (NTA) also climbed by 16% to $3.82 following an active half for the company after it raised capital to finance transactions for two pubs.

The $36 million raised plus an additional $69 million injected into the portfolio via capital expenditures was surely a sign of this activity.

HPI also offloaded two property assets for approximately $30 million which equated to an ‘exit yield’ of roughly 5%, which was reinvested into other sections of the portfolio.

Not only that, but the S&P/ASX 200 Real Estate Index (ASX: XRE) is one of the best performing sectors this past week, having climbed 3%, after faltering hard in January.

The upside has analysts at JP Morgan noticing the stock, particularly after the group’s most recent earnings results.

The broker is overweight on HPI shares and values the company at $4 per share in a recent note to clients. It reckons the group’s enormous portfolio and income stream are attractive points in the debate.

“HPI owns a ~$1.2bn portfolio of 56 properties located predominantly in QLD. HPI has a~11-year WALE with minimal near-term expiry risk”, the firm said.

“We like HPI for its defensive income stream and long WALE and believe its book cap rate is too high given the security of its income and high fixed growth (lower of 4% pa or 2x CPI)”.

According to Bloomberg, 60% of brokers have HPI as a buy right now, whereas just 1 broker each have it as a hold and sell.

HPI share price snapshot

In the last 12 months this All Ords share has climbed more than 30% and has continued another 3% gain this year to date.

Over the past month, shares have climbed 8% and HPI is now in the green across all major timeframes.

The post This ASX All Ords share is bucking the sell-off to near all-time highs appeared first on The Motley Fool Australia.

More reading

• Why has the Coles (ASX:COL) share price rallied 7% in a month?
• GameStop 2.0? What you need to know about the nickel short squeeze and how it’s impacting ASX shares
• VAS is the ASX’s most popular ETF. But where are the tech shares?
• This tiny ASX mining share surged 14% today. Here’s why
• Bitcoin price edges higher as potential European crypto mining ban flops

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Hotel Property Investments Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/8CqBlUf

In case you missed it, the price of nickel went vertical on 8 March and briefly topped US$100,000 per tonne for the first time ever.

There hasn’t been this kind of calamity on commodities exchanges since previous crises for tin, oil and gold back in the 70s and 80s.

The London Metal Exchange (LME) promptly halted trading after prices went parabolic, as brokers struggled to fill orders and collect margin calls from traders being liquidated en masse. Billions were lost from short sellers as the price eventually spiked 250% in around 24 hours.

Afterwards, trading of the metal could only occur within European hours and with a 10% cap on volatility.

Obviously, the conflict in Europe has the market jittery over supply concerns on the industrial metal, that is used in applications ranging from batteries to steel production.

Nickel had already been strong for more than 12 months prior to the conflict. However, Russia is the world’s largest supplier of nickel and the events sparked a frenzy on the LME last week.

At the time of writing, Nickel is fetching US$48,226 as things have ‘settled’ and trading has somewhat returned to normal.

But there’s a bit more at play than just the forces of supply and demand in this case. Firstly, it appears to be more market mechanics instead. And second, there wasn’t that much of a spread between buyers and sellers in early March anyway.

There was, however, a large amount of short interest on the price of nickel from one particular steel and nickel juggernaut out of China, Xiang Guangda.

Guangda is the owner of Chinese steel and nickel giant Tsingshan Holding Group Co. The company is actually a large buyer of the metal, being the world’s largest steel producer, but held a large short position in nickel futures as well.

It’s not entirely clear if this was as a hedge against falling nickel prices or if there was some speculation involved, now that some time has passed and more details have emerged on the matter.

Instead, what happened was a classic but rare ‘short squeeze’ – not unlike that seen in the GameStop Corp. (NYSE: GME) saga in early 2021.

Back then, GameStop shares rose from around US$17 to US$325 per share in less than a month as retail traders squeezed out hedge funds that held large positions on the company.

In other words, we’ve seen this movie before. But what is a short squeeze? And will it impact ASX shares? Let’s take a look.

What is a ‘short squeeze’?

Those holding a short position in the futures markets are either protecting against price movements or wagering that prices will fall.

Obviously, those speculators will see their capital evaporate if prices suddenly shoot up, if they aren’t hedged themselves.

In a squeeze, rising prices put these speculators in between a rock and a hard place. In order to stay in the trade, they (or their brokers) must buy (or go long) on the asset in a process known as ‘covering the short’.

However, if the short interest is high enough, the process forms a negative feedback loop – as prices rise, the huge wager forces the trader to buy more of the asset — pushing prices up even further, and compounding losses on the short side.

The same happened with GameStop stock, albeit in a more architected fashion. This time, however, it was with nickel, a global commodity that is essential to our day-to-day lives.

Not to mention it’s requisite in the future of energy production and the likes.

So as prices began to rise, the short seller had to cover his position by buying nickel, sending prices higher. Other speculators joining in may have also helped the rise.

What actually happened?

It was a fairly interesting set of affairs. As the events unfolded on 8 March, many in the industry were talking of an all-out meltdown in nickel markets.

If we backtrack a bit just before the jump, we see that nickel has been in an uptrend with strong support. Despite the gain in price, Tsingshan was able to meet its margin calls at that time, Bloomberg reported.

It wasn’t until the enormous surge began on 7 March that LME brokers began to feel nervous and started ringing their clients to post more margin in their accounts. Margin is just a cash balance that futures traders must maintain as they trade on leverage.

Tsingshan got a margin call for $3 billion, according to Bloomberg, meaning it had exposure to more than 150,000 tonnes of nickel.

The problem for Tsingshan was that $3 billion was a little too much for this steel giant’s bank account. Plus, no banks were going to answer their calls to lend that amount on credit.

Unfortunately, it’s the brokers who first have to pay the margin calls, but to the exchange. They then receive the margin top-up from their clients.

In this case, the banks and brokers were paying, but receiving no margin top-up from their client. These banks had “offset their deals with Tsingshan by placing their own short positions on the LME”, according to Bloomberg reports.

“Now they had to pay big margin calls on the exchange while receiving no margin from their client,” Bloomberg said.

Some of these banks started to rapidly buy back nickel contracts in order to cover themselves, and this sent prices soaring even higher.

“It was a classic short squeeze, as the pain for Tsingshan, its brokers, and other shorts created a self-reinforcing cycle,” Bloomberg said.

The LME promptly intervened and froze the price of nickel at US$80,000 per tonne, afterwards cancelling all trades that took place on the Tuesday morning – almost $4 billion, according to Bloomberg.

What’s happened to ASX shares since?

The fallout has been that the price of nickel is now at unprecedented highs and those nickel producers, such as ASX shares Nickel Mines Ltd (ASX: NIC), Poseidon Nickel Ltd (ASX: POS) and BHP Group Ltd (ASX: BHP), each incurred losses in the days following.

With Nickel Mines, it was due to the association with Tsingshan, such that the company released a statement after its shares were placed in a trading halt. The trading halt came after the Nickel Mines share price had slumped 22%.

Aside from that, the S&P/ASX 300 Metals & Mining Index (ASX: XMM) also took a sharp downturn on the same day and has fallen more than 9% since – even as many commodities surge to decade-long highs.

Much of the reason why ASX commodity shares – particularly those involved with nickel – haven’t received the news well boils down to how these markets operate.

One might presume higher prices is a huge positive for miners and producers, for instance.

However, that’s not necessarily the case. Miners, manufacturers, producers and the like each use futures markets to place short trades, in order to hedge their exposure to the commodity.

Nickel miners, for example, want to ensure that, when it comes time to sell their product, they can get the best price. If prices fall, they are out of pocket.

That’s why they short futures to effectively ‘lock-in’ the price they can sell at if this were to occur — an insurance of sorts. Buyers of nickel will do the opposite except to lock in a buying price.

Both sides will even ‘carry’ the trade forward, so to keep the hedging position active as time rolls on.

But when the market makes huge moves in the opposite direction – as it did on March 8 – they will be hit with margin calls or requests to put down more cash to keep the trades open.

No one is immune. It’s not just the traders and speculators. It’s the largest commodity players each having to scramble to cover their bases.

With this most recent saga, ASX nickel producers who participate in these markets are going to see some impact from the calamity at the earnings level, seeing as their short positions were more than likely taken out with the price surge.

Plus there’s no certainty the gain in price will equate to higher sales figures for the companies involved. Sales have to be realised at these record prices for anything to occur.

In other words, it’s not all just about demand and supply with commodities – it boils down to factors of hedging, speculation and market mechanics as well.

Thankfully, zooming out and scoping the wider market, there doesn’t appear to have been a large spillover into other pockets of the ASX outside of the mining sector.

The S&P/ASX 200 Index (ASX: XJO) is trading sideways and is actually up 1% for the month, while the S&P/ASX 200 Financials Index (ASX: XFJ) has soared around 7.5%.

The post GameStop 2.0? What you need to know about the nickel short squeeze and how it’s impacting ASX shares appeared first on The Motley Fool Australia.

More reading

• Here are the 3 most heavily traded ASX 200 shares this Tuesday
• Why are ASX 200 mining shares having such a dire day?
• Why is the BHP (ASX:BHP) share price down 4% today?
• Cash machines: 6 ASX 200 shares with the highest dividend yields right now
• These 3 ASX 200 shares are topping the volume charts on Monday

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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.

from The Motley Fool Australia https://ift.tt/846gqvX

When it comes to choosing an exchange-traded fund (ETF) to invest in, the preferred choice by far for ASX investors is the Vanguard Australian Shares Index ETF (ASX: VAS). We know this because VAS has just under $10 billion in assets under management. Its closest competitor for the dollars of Aussie investors, the iShares S&P 500 ETF (ASX: IVV), has just under $5 billion.

But if you’re a fan of ASX tech shares, and you either own VAS or are looking at owning it, then you might be in for a nasty shock. This ETF owns almost any public Australian company you can think of. Its top shares include names like Telstra Corporation Ltd (ASX: TLS), Commonwealth Bank of Australia (ASX: CBA), and Woolworths Group Ltd (ASX: WOW).

Yet if you look at this ETF’s top 10 holdings, you will see not one ASX tech name.

Indeed, you won’t see any tech if you look at its 20 largest holdings. Our first tech name comes up at number 27 on VAS’s latest portfolio data – Block Inc (ASX: SQ2). And that’s not even technically an Australian company. It’s only on our ASX due to its recent acquisition of the homegrown buy now, pay later (BNPL) company Afterpay.

Overall, the Tech (or Information Technology) sector only makes up 3.9% of VAS’s total weighting. Compare that to Materials at 24.3% or Financials at 27%.

VAS ETF: Why are ASX tech shares missing in action?

So what’s going on? Why doesn’t this ETF invest even $4 in every $100 it receives into tech?

Well, it’s not VAS’s fault. The Vanguard Australian Shares Index ETF is, well, an index fund. That means it has to mirror the composition of the S&P/ASX 300 Index (ASX: XKO). And the ASX 300, in turn, has to rank the top 300 companies on our share market purely on market capitalisation (size). It just happens that our largest public companies here in Australia tend to be banks and miners. Thus, these are the ASX 300’s (and VAS’s) largest holdings too. The ASX’s tech shares are all there. But they just don’t occupy a huge presence in VAS’s portfolio.

So if you want outsized exposure to the tech sector, you’ll either need to buy the shares yourself, or else find an index ETF that mirrors a different index with a heavier weighting to the tech space. The IVV iShares S&P 500 ETF that we mentioned earlier is also an index ETF, but this one covers the US markets, not the ASX. In stark contrast, IVV has a 27.21% weighting to tech shares, since it is dominated by companies like Apple Inc (NASDAQ: AAPL), Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL), and Amazon.com Inc (NASDAQ: AMZN).

But there are tech-specific ETFs that cover ASX shares too. One example is the BetaShares S&P/ASX Australian Technology ETF (ASX: ATEC).

So, like with any investment, make sure you know what you’re buying before you buy it. You might get a surprise you weren’t preparing for!

The post VAS is the ASX’s most popular ETF. But where are the tech shares? appeared first on The Motley Fool Australia.

More reading

• Warning: Only 4 ASX shares just added to ASX 300 are profitable
• Diversification? Why VAS is really a bet on banks and miners
• Think VAS is the best ASX index fund? These ETFs have beaten it over the past decade…
• What’s going so wrong for ASX ETFs in 2022 so far?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen owns Alphabet (A shares), Amazon, Apple, and Telstra Corporation Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Alphabet (A shares), Amazon, Apple, and Block, Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Alphabet (C shares) and has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia owns and has recommended Block, Inc. and Telstra Corporation Limited. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and iShares Trust – iShares Core S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/cNr0LtU