ASX shares are ‘vulnerable to further falls’: expert

Investors are nervous and “sensitive to weaker economic data”, with more volatility likely ahead for the Australian share market despite its stabilisation in recent days, says AMP chief economist Dr Shane Oliver. A dramatic global sell-off at the start of the month saw the ASX 200 plunge 465 points or 5.73 percent over two trading sessions, with other share markets around the world also tumbling.

A weak jobs report and manufacturing report out of the United States sparked the sell-off due to fears the world’s biggest economy may be slowing faster than thought and a recession may be imminent. Major ASX 200 companies were caught up in the sell-off, with shares in our biggest technology company, Wisetech, falling 12.58 percent over the two days. ASX 200 bank shares were also hit hard, with NAB shares dropping 8.52 percent and CBA shares shedding 8.35 percent.

Other major fallers included the ASX 200’s largest property stock, Goodman Group, with its share price diving 11.86 percent over the two days. Shares in the market’s biggest retail stock, Wesfarmers, fell by 6.19 percent, and the ASX 200’s biggest energy company, Woodside, lost 5.5 percent. Shares in the ASX 200’s biggest mining company, BHP, slipped 3.25 percent.

Another contributor to the global sell-off was the winding back of the Japanese yen ‘carry trade’. A carry trade is where global investors borrow money in a low-rate currency and invest in other currencies and assets, such as bonds and shares, that offer a higher rate of return. Japan had zero or negative interest rates for almost 14 years before the Bank of Japan raised rates in March to a range of 0–0.1 percent and again last month to 0.25 percent. This prompted investors to begin selling their investments, which are spread across share markets all over the world, to reduce or end their carry trades.

The threat of a recession in the US was somewhat quelled last week when the latest US initial jobless claims report showed the number of workers claiming welfare was lower than expected. Comments from the Bank of Japan’s deputy governor indicating the bank would not raise rates further while markets are unstable also calmed investors’ nerves. As a result, some losses were clawed back. The ASX 200 finished 2.08 percent lower last week, with Japanese shares down 2.5 percent and US shares down 0.04 percent.

Dr Oliver said ASX shares could rebound a little more but they remain “vulnerable to further falls over the next few months”. Dr Oliver said this was due to stretched valuations and a “very high” risk of recession both in Australia and the US. He said there were indications of deteriorating employment in both economies and share markets had not priced this into company valuations.

Dr Oliver added: “… geopolitical risk is high particularly around the US election and the Middle East with a high risk of escalation between Iran and Israel after the assassination of [a] Hamas’ leader in Iran; and we have only just started in the seasonally weak period of August and September which can sometimes extend into October/November in US election years”.

Dr Oliver said the Reserve Bank was “surprisingly hawkish” last week, with Governor Michele Bullock saying the board considered a rate rise at its meeting before deciding to keep rates on hold. She also said a rate cut was unlikely over the next six months. The RBA has also pushed out its expectations on the timing for a return of inflation to its target middle of the 2-3 percent band by six months.

“This hawkishness was a bit surprising given that in the last few months economic growth came in weaker than expected and inflation was broadly in line with RBA forecasts, the RBA’s near-term wage growth forecasts have been revised down and uncertainty regarding growth in China and the US has increased,” Dr Oliver said.

KYIV, Ukraine—Beyond the bombs and gunfire of Russia’s war in Ukraine , a parallel economic war is raging.

Its front line is on occupied Ukrainian farmlands, from which Russia and its partners have sold almost $1 billion in stolen grain on a burgeoning black market.

Moscow’s forces in Ukraine since 2022 have occupied some of Europe’s most fertile farmland. The occupiers have either seized harvests or bought them cheaply, often forcibly.

The business involves a wide network of clients who benefit from Moscow’s wartime patronage system, including a Russian shipyard equipping the invasion, a company affiliated with Iran’s Revolutionary Guard and a Crimean businessman who trades with Syria and Israel. Another company sells through the United Arab Emirates.

Trading the looted Ukrainian agricultural products keeps Russia’s allies funded and loyal to Moscow even as it faces mounting economic pressure , offering a sort of off-balance-sheet vehicle financing Kremlin objectives.

The Kremlin didn’t return requests for comment on its exports of Ukrainian crops.

“It’s like the war is feeding itself,” said Pascal Turlan, legal director at rights organization Project Expedite Justice, which is helping Ukrainian prosecutors investigate grain theft. “The illicit trade brings revenue to a Kremlin-sponsored patronage system, which in turn helps the conflict and the occupation to continue.”

The exact commercial value of Russia’s pilferage is difficult to determine amid the war’s chaos and Moscow’s subterfuge, but it is large. Since 2022, the operation has directly shipped at least 4 million tons of grain and other produce from occupied Ukraine to international markets, generating revenue of $800 million, said Markiyan Dmytrasevych, Ukraine’s deputy agriculture minister.

Much more has been exported by land or small ships, according to Ukrainian nonprofit organization Texty, which estimates the total value of grain taken by Russia in occupied territories could be as high as $6.4 billion.

The patronage take many forms. Three bulk vessels that export large volumes of illicit grain are owned through a chain of corporate entities by Russia’s state-run United Shipbuilding Corp., which also produced warships used to shell Ukrainian cities, according to the U.S. government.

A Russian company that exclusively sold grain from the occupied region of Zaporizhzhia donated 10 million rubles, or $111,000, to a battalion fighting in the province, according to a document obtained by KibOrg News, a Ukrainian project that documents Russian economic-looting activities in the occupied territories.

Moscow is also attacking Ukraine’s own grain exports. Late Wednesday, a Russian missile struck at a ship that was carrying Ukrainian wheat just after it had left a Black Sea port for Egypt, Ukraine’s president Volodymyr Zelensky said on his Telegram channel.

From farm to sea
Russia’s illicit agricultural trade begins on Ukrainian farms. Moscow’s forces either compel farmers to sell their crops at below-market prices or steal them, sometimes at gunpoint.

Bohdan Katerenyak, the manager of a silo in Kherson, a southern Ukrainian province conquered by Russia at the beginning of the war, said he was at work in August 2022 when men with machine guns, clad in balaclavas, entered his office.

“We have an order to take over,” one told him in a Chechen accent, handing him an identification card from the FSB, Russia’s domestic security service, Katerenyak said. A few days later, another man, also claiming to be an FSB agent, arrived and impounded the facility’s grain.

“They are bandits,” Katerenyak said of the men. Fearful, he fled to Ukrainian-controlled territory and later learned the silos had been emptied.

From farms like Katerenyak’s, produce is shipped by truck and rail to ports along the Black Sea, some on occupied Ukrainian territory.

Russian authorities say that in the first half of this year they sent 15 ships carrying 81,000 tons of wheat to Turkey from Mariupol, another city conquered during the war.

Turkey bans ships from occupied Ukrainian terminals and cooperates with Kyiv to block illicit trade, the country’s foreign-affairs officials said.

Separately, Ukrainian prosecutor Ihor Ponochovniy in June started tracking a Turkish-owned ship, the Usko MFU, which he suspected had carried stolen grain last year from the Crimean port of Sevastopol . Russia seized Crimea from Ukraine in 2014 and in 2022 linked it with occupied Kherson.

Ukraine’s border force in June told Ponochovniy the Usko MFU had entered Ukrainian waters. He issued a search warrant and police boarded it. Onboard they found records showing it had left Sevastopol last November for Turkey carrying 2,100 tons of crushed sunflower seeds and brown wheat potentially worth half a million dollars.

Investigators said they found onboard a message from the ship’s managers to the captain instructing him to conceal the cargo’s Crimean origin. Ukraine’s border force in July seized the Usko MFU.

The ship’s owner, USKO Shipping Management, didn’t respond to a request for comment. A lawyer representing the vessel’s captain declined to comment.

Mikhail Ganaga, a former professional wrestler and the son of a district governor in Crimea, is among a select group of collaborators who have profited from the grain theft.

Ganaga controls Agro-Fregat LLC, which delivers grain harvested in occupied territories and has shipped grain to Israel and two of its foes, Syria and Iran, according to trade and shipping records and Ganaga himself. Ganaga and Agro-Fregat didn’t return requests for comment.

Pressure to halt shipments

Ukraine is applying diplomatic pressure on importing countries, with some success. In the past two years, Egypt, Israel and Lebanon either canceled loadings or stopped buying grain cargoes after Ukrainian diplomats told them they had departed from Russian-occupied parts of Ukraine , according to Ukrainian officials.

Foreign Ministry spokesman Heorhiy Tykhiy said that Lebanon shifted to Ukrainian grain. Egypt has refused some grain shipments that originated in Russian-occupied territories of Ukraine, according to Ukraine’s military intelligence agency.

Russian allies Iran and Syria have said they won’t abide by sanctions. Iran has supplied the Kremlin deadly weaponry that enhanced Russia’s ability to hit military and civilian targets. This month, Tehran started to supply ballistic missiles to the Kremlin. Iranian politicians said they were in exchange for Russian grain.

Tehran buys barley in Crimea for $140 a ton, a 34% discount from market prices, said Kateryna Yaresko, an analyst at SeaKrime, a nonprofit project in Kyiv that tracks illegal shipments from Crimea and provides information to the Ukrainian authorities.

Traders in Russian-occupied territories are building ties with Tehran’s hard-line circles. Igor Rudetsky, a manager at a grain terminal in occupied Crimea, last year posted on his social-media accounts pictures of himself meeting representatives of Islamic Republic of Iran Shipping Lines, which is sanctioned by the U.S. for shipping weapons on behalf of Iran’s military and nuclear technologies.

Rudetsky, according to his posts, also visited Pars Holding, an agricultural company that is part of a foundation controlled by Iranian Supreme Leader Ali Khamenei . Rudetsky said by text message that he spoke to the companies as part of an international marketing campaign that also included China, India and Africa, though he says he doesn’t sell produce himself.

Rudetsky said grain exports from Russia aren’t restricted by international sanctions and that he bought the port “for real money” in a deal that was “legally impeccable.”

Russia deems Crimea its territory but other countries don’t and consider any exports from it illegal.

Yemen is a new market for Crimean exports. In June, a Russian state-controlled vessel, the Zafar, delivered grains to al-Salif, a port held by the Iranian-backed Houthi faction in Yemen, according to shipping and corporate records.

As Kyiv cracks down, exporters are adopting increasingly complex evasion tactics such as transferring grain to Russia and mixing it with legitimate products before reselling it on international markets. Ukrainian authorities are struggling to keep up.

“We need more people,” said Ponochovniy, the prosecutor.

Ukrainian prosecutors in Kharkiv are probing a trader that it suspects stole grain and resold cargoes to an Emirati company. Helios Plus drew prosecutors’ attention after it removed all 700 tons of grain left at a bread factory flour mill in the nearby town of Kupyansk when Russia seized it in August 2022.

Helios Plus didn’t respond to a request for comment.

The company in 2015 started selling grain out of areas of eastern Ukraine that had come under control of Russian-backed separatists, according to Russian records viewed by The Wall Street Journal. The records were obtained in an investigation by Project Expedite Justice.

The documents indicate Helios Plus took a large volume of grain from other occupied territories in the past two years. It then sold the grain to buyers in Turkey, the U.A.E. and as far as Costa Rica, according to customs declarations.

ASX shares are ‘vulnerable to further falls’: expert

Investors may still be in for a bumpy ride yet as a leading Australian economist forecasts that more volatility in global markets is likely over the coming months

Moscow’s war ‘is feeding itself’ as friends and backers cash in on crops from occupied territories

Pressure to halt shipments