Issue #38 | Doubling Down

ASX - Top 3 Winners & Losers
Deals Down Under - $43.7bn AI IPO
Global Markets - AUD surge
Other News - Aussie Politics, Sport and Culture

The ASX 200 rose 0.2% this week, just enough to end a four-week losing streak, after the RBA lifted the cash rate by 0.25 percentage points to 4.60% on Tuesday, its fourth hike this year, citing higher energy prices from the widening Middle East conflict. The week swung hard, with a 2% sell-off on Thursday as US bond yields surged, before a 0.79% Friday rebound led by tech and energy as yields eased. Oil above US$102 a barrel is keeping inflation pressure in focus. 

This week’s best performers

Codan (ASX:CDA) +29.09%

First half profit guidance of at least $160m sent Codan, the radio communications and metal detector maker, up 29.09%. That is more than 125% above the $71.2m a year earlier, and one half alone is ~91% of its entire FY26 profit. The driver is demand for drone radio components, with ~50 manufacturers across the US and Europe buying and conflict zones a big part of the orders. At ~$12.3bn it has overtaken WiseTech as the ASX's biggest tech stock, but it now trades above the $66.77 average analyst target. 

Data#3 (ASX:DTL) +22.61%

Data#3, the IT services and software reseller, rose 22.61% after upgrading its first half FY27 guidance, hitting a new all-time high. It expects profit before tax of more than $46.9m, over 20% above the $39.1m analysts were forecasting. Part of the beat came from large client deals landing earlier than planned and some investment spending slipping into the second half. That reverses what analysts expected, since the second half now has to beat a higher base without those one-offs. Full detail comes at the AGM on 28 October. 

Megaport (ASX:MP1) +13.86%

Three AI-infrastructure contracts worth ~US$978.6m lifted Megaport, the network provider that connects businesses to cloud and data centres on demand, 13.86%. It also raised FY27 revenue guidance to $720m to $810m, up from $620m to $730m. Because the upgrade is tied to named contracts rather than hopes, the market bought it even with US 10-year yields at ~5.24%, a level that normally hurts growth stocks. The $90m spread in the new range is still wide, so how much lands in FY27 is the open question. 

This week’s worst performers

Liontown (ASX:LTR) -15.43%

Liontown, the lithium miner behind Western Australia's Kathleen Valley mine, fell 15.43% as lithium stocks kept getting sold, leaving it down 24.39% in September. It also approved a $389m expansion lifting processing capacity 50%, funded from its $561m cash balance without raising equity. The catch is that FY27 capex guidance jumped ~35% to as much as $495m, and the extra volumes have no buyers locked in yet. That means the payoff depends on lithium prices recovering, which is exactly what the market is doubting. 

Iperionx (ASX:IPX) -13.04%

There was no company news behind the 13.04% fall in IperionX, the US titanium developer that was one of our best performers two issues ago. The stock has lost more than half its value since June and sits near an 18-month low, with short positions (bets the price will fall) at a record. The RBA also lifted rates for the fourth time this year, which tends to hit pre-revenue developers that need to keep raising capital. Heavy shorting can also fuel a sharp rebound if the stock turns, though the chart shows no sign of that yet. 

Elevra Lithium (ASX:ELV) -12.94%

The lithium sell-off hitting Liontown dragged Elevra Lithium, the North American lithium producer, down 12.94% too. Its latest Ewoyaa update came late in the week and carried no real surprises. The ~US$71m sale of its Ghana project to Huayou is still waiting on Ghanaian government approval. If that isn't in by 30 October, Huayou can either complete the deal or walk away and pay a US$5m break fee. That is small next to the sale price, so a collapse would leave Elevra with the project and little compensation. 

Firmus Technologies is going public on the ASX on 23 October, and it will be the biggest listing here since Telstra in the 1990s. Priced at $11 a share, it is targeting a $43.7bn market value while raising ~$7bn, making it the second-biggest IPO in Australian history. That valuation is nearly triple the $15bn it was worth in early August.

Firmus is what the market calls a neocloud, a company that builds data centres and rents out computing power, mostly specialised Nvidia chips, to the businesses running AI. Meta and OpenAI are customers, and Nvidia, its only chip supplier, owns 7.2%. It has just two data centres operating, in Melbourne and Singapore, but has 912MW of capacity contracted, enough power for more than 1m Australian homes, and most of its future profit depends on centres in Malaysia and Indonesia that haven't been built yet.

That gap is why investors are split. Firmus expects an operating loss in the first half despite revenue jumping to ~$330m, and carries ~$30bn of debt, around six times its forecast earnings. Merlon Capital's Kirit Hara said his process stops him "buying into the hopes and dreams", and Blackwattle won't bid at all, calling the company "unproven". 

The timing comes down to cash. Firmus has raised capital four times in the past year, and its lenders will only fund 80% to 90% of the chip costs if it has customer contracts locked in, with the IPO covering construction. It also needs tens of billions more for Malaysia and Indonesia, which is why its CFO told investors a Nasdaq dual listing is "certainly something that we'd be thinking about", with US investors holding far deeper pockets. First, it has to build on time while residents fight its Tasmanian sites.

An exchange semester in Canada now costs Australian students roughly what it would at home. The Australian dollar touched 1.0016 Canadian dollars this month and is trading at 0.9891 today. For Australian uni students tracking their global purchasing power, the Aussie dollar is punching well above its weight.

The main driver is the interest rate gap. The Reserve Bank of Australia has lifted the cash rate four times this year to battle domestic inflation, most recently to 4.60% this week, it’s highest level since 2011, while the Bank of Canada has held its overnight rate at 2.25%. Because of this gap, foreign investors chasing higher returns buy Australian government bonds. They need Australian dollars to do so, which pushes up demand for the currency. Strategists flagged this dynamic in April, when the RBA was already raising rates while other major central banks held steady.

The gap with the US is smaller, as markets expect the Federal Reserve to keep tightening, so US investors have less reason to move money into Australian assets. Demand for the Aussie is weaker as a result. It fell below US70¢ this week after Governor Michele Bullock said the board had considered holding rates. Investors took that as a sign another hike was less likely, which lowered the returns they expect from Australian assets and reduced demand for the currency. That same shift is why the Aussie has slipped back from its peak against the Canadian dollar.

Whether Australia stays a magnet for global money now depends on the gap holding. If the Bank of Canada raises rates at its October 28 meeting, Canadian bonds pay more and the Aussie loses part of its pull. The RBA could widen the gap again, with CBA flagging a follow up hike to 4.85% if September quarter trimmed mean inflation comes in at 1% or higher. For Australians more widely, a stronger dollar against the Canadian dollar makes Canadian goods and holidays cheaper. It also means Australian exporters selling into Canada earn fewer Australian dollars, and Australian investors holding Canadian shares see their returns shrink when converted back home.

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.