Deloitte Australia has released a special report which looks back on the events and milestones shaping local and international markets over the past two decades. The latest WA Index 2020 also reveals the movers, shakers, and winners of the state’s biggest companies.
Deloitte WA Audit and Assurance partner Dave Andrews detailed that in 2020 the Index is leveraged to energy and resources companies, with commodity price moves and the Index performance moving in lockstep. But the Index composition has not always been so skewed to the resources sector.
“At inception of the Deloitte WA Index in mid-2000, the composition of the Top 10 showed a reasonable degree of diversification, and while energy and resources still dominated the mix at 50 per cent, WA had several significant corporates domiciled in the state playing in other industry sectors,” Mr Andrews said.
The top 10 companies by market capitalisation at the start of WA Index tracking included Wesfarmers, Woodside Petroleum, Homestake Mining, Bank of Western Australia, Foodland Associated, Franked Income Fund, Videlli Corporation, Seven West Media, Iluka Resources, and Orbital Corporation.
“Fast forward 20 years and the diversification almost vanishes. Apart from Wesfarmers and Woodside, all other Top 10 companies at 30 June 2020 are in the metals and mining sector,” Mr Andrews said.
The only non-energy and resources focused company holding a Top 10 position in the WA Index at both 30 June 2000 and at 30 June 2020 is Wesfarmers.
Wesfarmers has maintained an enviable position of ranking either #1 or #2 by market capitalisation at each measurement date throughout the duration of the Deloitte WA Index 20-year history.
During the early years of tracking the WA Index movements, the top spot was regularly contested between Wesfarmers and Woodside Petroleum throughout much of the decade.
Mr Andrews said it wasn’t until early 2012 Wesfarmers exerted itself into a position as clear leader of the ranking, the position it continues to hold.
At 30 June 2020, the Top 10 is represented by Wesfarmers, Fortescue Metals Group, Woodside Petroleum, Northern Star Resources, South32, Saracen Mineral Holdings, Mineral Resources, Iluka Resources, IGO, and Regis Resources.
Mr Andrews noted that three Western Australian companies have stood the test of time, holding a position in the WA Index Top 10 at both June 30, 2000 and June 30, 2020 measurement dates. These were Wesfarmers, Woodside Petroleum and Iluka Resources.
“To stay in the Top 10 companies two decades later is a remarkable achievement,” he said.
In 2000 when the Index came into being, dot coms were booming but it didn’t take long before the bubble burst in mid-2001.
In WA, local markets rode on the back of prosperous economic conditions and commodity prices that showed no sign of correction on the thirst for natural resources as the world’s industrial development, led by China, flourished. But what goes up, must come down – enter the Global Financial Crisis (GFC) of 2008.
“The GFC had a profound impact on world markets, and the shocks were exacerbated locally,” Mr Andrews commented. “While the WA Index had enjoyed outperformance in the leadup to the GFC, it took a much sharper fall as commodity prices tanked.”
Another notable theme from the analysis of the past two decades is the rise of WA based gold companies.
“With four producers in the Top 10, and 10 gold-focused companies occupying the Top 20, the importance of gold to the WA Index cannot be ignored,” Mr Andrews stated.
“It’s a well-known fact gold is considered a safe-haven asset in times of economic uncertainty, and with Brexit, the US/China trade wars, and a global COVID-19 pandemic, we are not surprised to have seen investors flock to add gold exposure to portfolios over recent years.”
Deloitte’s analysis of commodity price movements over the past 12 months highlights gold as being one of only a few commodities able to close this year higher than it started.
Uranium also achieved such accolade, with a welcome price bounce as COVID-19-related mine shutdowns displaced significant amounts of supply.
At the other end of the spectrum, hydrocarbon commodities such as LNG and crude oil fared poorly this year as aviation and transport grinds to a halt due to government-imposed travel restrictions.
“Considering this year’s commodity price outcomes, we reflected on whether a true indication of a commodity’s significance may be demonstrable through observing actual investor activity. The ‘Put your money where your mouth is’ evidence, so to speak,” Mr Andrews said.
Well, that is exactly what the market has done.
The winners of Deloitte’s High Growth Awards for 2020 – those WA companies which demonstrate the largest growth in market capitalisation over the past 12 months – all six of this year’s winners are gold-focused companies.
The top movers in the Top 20 of the WA Index were:
De Grey Mining Limited increased its market capitalisation a whopping 3,123 per cent to $1.06 billion and climbing from a ranking of 232 last year to 19th as of June 30, 2020;
Ramelius Resources Limited increased its market capitalisation 236 per cent from $477 million to $1.60 billion at June 30, 2020; and
Perseus Mining Limited increased market capitalisation by 124 per cent from $683 million to $1.53 billion.
The top movers in the WA Index Top 100 were:
Musgrave Minerals Limited increasing its market capitalisation 954 per cent to $216 million at June 30, 2020;
Chalice Gold Mines Limited increasing its market capitalisation 844 per cent to $302 million at June 30, 2020; and
Rox Resources Limited increasing its market capitalisation 824 per cent to $167 million at June 30, 2020.
Furthermore, this year the story has taken a twist no-one could have predicted with the COVID-19 pandemic sending shockwaves through global markets.
Mr Andrews said since the virus outbreak early this year, investors remain on edge and the risk of a second wave remains clear and present.
“The market reaction to COVID-19 has been profound. Following the first confirmed case of COVID-19 in Australia in late January 2020, the WA Index fell 27 per cent from its high of approximately $200 billion at January 31, 2020 to $151.3 billion at March 31, 2020,” he shared.
“Such a sharp retraction is seldom seen.”
Revisiting the data for the WA Index over the past 20 years, the most comparable period, albeit on a more severe scale, was the GFC in 2008.
The Index includes a comparison between the COVID-19 market correction against that experienced during the GFC.
“While not as deep or prolonged as the GFC, the COVID-19 correction has been sharp. Although just as sharp has been the recovery to pre-COVID levels,” Mr Andrews concluded.
Deloitte’s WA Index 2020 – 20 year Anniversary Special Edition can be found online here.