ASX market wrap February 2022

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February's red-hot start came crashing down in later weeks. The markets were rife with volatility as the Russia-Ukraine conflict was thrown into the mix of reporting season.

The good oil

Commodity prices reached fresh highs in response to speculation, then confirmation, of a Russian invasion of Ukraine. Gold and oil began to rise early in Feb when tensions began to simmer. Russia is the second largest exporter of oil globally and a key supplier to western European nations, who were in direct opposition to the conflict. Gold was bought primarily as a hedge against volatility that would result from Russia’s invasion. 

The market was also seeing higher than expected earnings results as it recovered from a correction in late January. The majority of the market was moving higher during the first third of Feb. When the Russian invasion materialised, however, we saw major corrections across the board. Investors were quick to exit risky positions and move into defensive assets. With their bet confirmed, early birds to the oil and gold movement enjoyed record high spot prices. 

  • S&P/ASX 200 Energy Index gained 6%
  • BetaShares Crude Oil Index ETF (Currency Hedged) (OOO.ASX) gained 12%
  • ETFs Metal Securities Australia Ltd (GOLD.ASX) increased 4.6% 
  • Woodside Petroleum rallied 13.9%

Reporting season

Block Inc (SQ2.ASX + 37%) 

Block, who officially incorporated Afterpay in January, recorded its highest intraday gain since listing on the ASX. Block suffered some pretty heavy selling on the back of rising interest rates and has come out guns blazing in its first ASX reporting season. Quarterly profit increased 47% over the same period last year and net income came in $25 million ahead of estimates. The tech company is also seeing decent returns from its Bitcoin venture made in late 2020/early 2021. Smashing market projections went a long way to boosting share value and was topped off by confident forward-looking statements from the founder and CEO.

Nufarm (NUF.ASX) 

Nufarm took advantage of record high fertiliser prices to deliver strong half-yearly results. Favourable seasonal conditions in Australia also increased demand for Nufarm’s products, leading to a 36% increase in revenues. A positive free cashflow puts them in a great position for growth and is a far cry from November 2020 lows. The repositioning should allow them to take advantage of developing opportunities in the space. In a prudent move, they’ve undertaken refinancing and altered the capital structure, effectively de-risking while the times are good, for when fertiliser prices eventually settle down.

Fortescue Metals (FMG.ASX) 

Fortescue staged a strong recovery since falling on the back of last year's full-year report, but dipped again after their half-yearly report. Revenues were down 13% and net profit took a 32% hit compared to the same report last year. Rising costs affected the industry and Fortescue was no special case. Also, the period saw heavy discounts applied to low grade iron ore, which made up the bulk for Fortescue’s product. The forward-looking picture is a difficult one. Iron ore prices are set to remain inflated, currently above US$140 per tonne, while conflict between Russia and Ukraine continues. If and when tensions settle, you can be sure China will make good on its promise to bring iron ore prices back down.

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