Issue #37 | Markets push back

ASX - Top 3 Winners & Losers
Deals Down Under - Perpetual rejects EQT
Global Markets - Bonds sell-off
Other News - Aussie Politics, Sport and Culture

The ASX 200 fell 0.8% this week, a fourth straight weekly decline, as oil pushed back above US$105 a barrel after Iranian-aligned Houthi forces attacked Saudi Aramco facilities in the Red Sea. The oil spike deepened a global bond sell-off, sending the US 10-year Treasury yield to 5.2%, its highest since 2007. When safe government bonds pay that much, shares look less attractive by comparison. This conflict could expand beyond the Persian Gulf and has ultimately kept investors cautious.  

The week’s best performers 

Electro Optic Systems (ASX:EOS) +9.48%

Defence technology company Electro Optic Systems rose 9.48% with no price-sensitive announcement behind the move. Instead, Vanguard appeared as a substantial holder, meaning it now owns at least 5% of the company, while conflicts in Europe and the Middle East have kept demand high for its counter-drone and laser systems. EOS has a much bigger order book to show for it, but an order book is contracted work, not revenue yet. Whether the rally holds depends on EOS building and delivering on time, all while it's still integrating its MARSS acquisition. 

Ramelius Resources (ASX:RMS) +8.10%

Gold miner Ramelius Resources rose 8.10% after unveiling a fully funded plan to lift gold output 205% by FY30. Next year's production guidance actually came in below analyst expectations, but the market cared more about cost. Its all-in sustaining cost, basically what it costs to produce each ounce, landed ~10% below estimates, meaning fatter margins on every ounce sold. With over $1bn in cash, gold and investments and no net debt, Ramelius won't need to raise money to fund it. The catch is its $1.5bn FY30 free cash flow figure assumes $5,500 an ounce gold, and Mt Magnet's costs have already blown out 26% once. 

Lovisa (ASX:LOV) +7.60%

Fast-fashion jewellery retailer Lovisa rose 7.60%, though there was no company announcement to explain it. It looks more like a bounce than anything else, with the stock still down 40.48% over the past year. The business itself is still growing, finishing the first half with 1,095 stores after opening 85 new ones, on $500.7m in revenue. New stores have been Lovisa's growth engine, so the next result needs to show they're actually earning their keep, or this week's gain won't last long. 

This week's worst performers

Tuas (ASX:TUA) -21.24%

Singapore mobile and broadband provider Tuas fell 21.24% despite an FY26 result that beat Morgan Stanley's estimates, with underlying profit up 329% to S$29.6m. The problem was what went unsaid. Its $1.59bn bid for M1 lapsed in May after Singapore's regulator began investigating unauthorised spectrum use by its subsidiary, and the chairman gave no update beyond awaiting a formal decision. Until that lands, investors are guessing at the penalty. Tuas is also sitting on S$498.8m in cash with no plan for it, most of it raised at $5.51 a share for a stock now trading below $2. 

Nine Entertainment (ASX:NEC) -14.38%

Nine Entertainment, the owner of Stan, 9Now and the Australian Financial Review (AFR), fell 14.38%, hitting a 12-month low of 66 cents on Thursday without any announcement to the ASX. The likely cause is two senior exits. Amanda Laing, who ran streaming and broadcast, is leaving after 18 months, while AFR editor-in-chief James Chessell is joining Joe Aston's start-up Rampart. Losing the editor of your flagship masthead to a former AFR journalist's rival isn't a great look. It comes despite a solid FY26 with net profit up 11%, so the question is whether the leadership churn gets in the way of FY27's promised growth. 

Perpetual (ASX:PPT) -14.23%

Perpetual, the asset manager and corporate trustee, fell 14.23% after its board rejected EQT's $22.50 a share best and final offer, ending talks. When a takeover bid disappears, the share price loses the premium investors had built in expecting a deal, and falls back toward where it would trade on its own. The board now has to prove its standalone plan, built around selling its Wealth Management arm and moving to net cash, is worth more than EQT's price. More on that in Deals Down Under below. 

Shares in ASX listed financial services group Perpetual Limited fell 15% on Monday after its board rejected a revised $2.6 billion takeover proposal from Swedish private equity firm EQT. The $22.50 per share offer was the same price EQT put forward on July 27, with the only sweetener being permission for Perpetual to pay a dividend of up to 60 cents per share for the half to December 31 on top. EQT called it its best and final offer in the absence of a competing bid.

The board said the price undervalued the wealth manager and that assumptions underpinning the proposal carried an "unacceptable degree of transaction execution risk". Investors were unconvinced. Several shareholders told the AFR the rejection was unjustifiable and called for the board led by Greg Cooper to be replaced. One argued the offer was effectively worth $23.73 once the recently paid 63-cent dividend and the additional 60 cents were included.

Perpetual will now focus on its corporate trust and asset management businesses, which include boutiques Pendal, Barrow Hanley and J O Hambro. The sale of its wealth management arm remains on track to complete by the end of 2026, after which Perpetual expects to hold net cash and has flagged further capital management alongside dividends. The company returned to a $89 million net profit in the year to June 30, up from a $58 million loss, on flat revenue of $1.37 billion.

The rejection is being read as the end of an interest that dates back to 2022, when EQT bid for Perpetual's corporate trust unit alongside hedge fund Regal Partners. That attempt failed too. Now, after four offers in under three months, the board has to show its standalone plan is worth more than $22.50 a share.

Bond markets are having their biggest correction in a generation. The yield on the 30-year US Treasury, the interest rate the US government pays to borrow over three decades, hit 5.48% on Thursday, its highest since 2004, while the benchmark 10-year reached 5.20%. It isn't just the US either. Germany's 10-year yield hit a 17-year high this month, Japan's is at its highest since 1996, and UK borrowing costs are approaching a 19-year high.

The mechanics are simple enough. When investors sell bonds, prices fall and yields rise, because anyone still buying wants a higher return. Right now they want more because they expect inflation to stay high. The war on Iran has pushed oil above US$105 a barrel, and US business survey data showed input costs rising at the fastest pace in four years, meaning it's getting more expensive to make things and those costs usually get passed on. Markets now see roughly a 66% chance the Federal Reserve raises rates again in October.

The complication is that governments are borrowing more at exactly the wrong time. Germany expects record borrowing this year, and US Treasury Secretary Scott Bessent has been buying back long-dated bonds to bring yields down, with little success. Investors are now eyeing 6% on the US 10-year as the next pain point.

For Australia, our bond yields tend to follow the US, and they're rising too. AMP's Shane Oliver says a worst case would see US 10-year yields around 6% and a bit more in Australia, which he says would mean multiple RBA rate hikes, higher mortgage repayments and lower super balances for retirees. Super funds feel it directly, since falling bond prices cut into the bond holdings most balanced options carry.

It's not everyone's base case. CBA's Adam Donaldson thinks US yields are somewhere near their peak. But with oil still climbing and Trump giving little indication of when the war ends, whether bond investors are done selling remains to be seen.

Thanks for reading Capital Down Under till the end! If you enjoyed this week's issue, feel free to forward it to a friend – we'd really appreciate it.

Also, if you had any thoughts, tips or ideas for next week, just hit reply.