ASX 200: 5 key takeaways from the week that was
‘Change is the nature of life, so always question things and expect them to change over time,’ said the philosopher Friedrich Nietzsche.
Just as change remains a constant in our lives, so too does volatility remain a constant in the markets. Yet though many expect volatility, some may even attempt to profit from it, likely very few expected the kind of radical upheavals we are currently witnessing across bond, currency, commodity and equity markets.
With this in mind, below we look at five key takeaways from the week that was, with a particular focus on Australian markets.
Indices remain on shaky ground
Global equity markets continue to experience extreme levels of volatility, as investors remain uncertain about how to properly price the risks associated with the coronavirus (Covid-19) crisis.
And though the ASX 200 rallied modestly on Friday, the week was one marked by steep losses, with the blue-chip benchmark falling some 700 points or 12.8%, from Monday to Friday.
US markets fared slighlty better, with the Dow Jones and S&P 500 benchmarks giving up around 8% each, from Monday to Friday.
A sharp rotation out of growth
Though virtually no equities have been spared from the coronavirus-led panic selling during the last month, some of the ASX’s brightest growth prospects have been hit particularly hard.
In the last 30 days the Afterpay share price has crashed 68.3%, PointsBet is down a staggering 74.3%, EML Payments has cratered 66.7% and Zip, a contender to Afterpay’s BNPL crown, is down 66.13%.
Jumbo Interactive – another once-popular growth name – though only down 23% in the last month, looks to have beat the other growth stocks to the sell-off. In the last six months, it too is down over 60%.
The above action suggests a definitive ‘flight to quality’ from Australia-focused investors.
How to trade ASX growth stocks
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Central banks are armed and ready
Central banks this week proved that they are willing to do what it takes to keep the global economy ticking over – with the likes of the US Fed, Australia’s own RBA and the ECB announcing a host of emergency stimulus and/or monetary policy measures to combat the economic impact of the coronavirus.
For example, on Thursday the RBA slashed interest rates to 0.25% and announced the details of a Quantitative Easing (QE) program, last Sunday the US Fed cut interest rates to near zero and the ECB this week announced a €750 billion emergency purchase program, which would involve buying public and private sector securities.
Oil price volatility reaches new heights
As neither Russia nor Saudi Arabia look willing to back down from the fast-escalating oil price war; global oil markets proved particularly volatile this week.
On Wednesday, WTI Crude collapsed 24% before rallying approximately the same amount the next day, and last traded at US$22.63 per barrel, according to Oil Price.
Brent Crude proved a little less wild (but only by a shade), with the global benchmark last trading around US$29 per barrel, according to Oil Price.
Even so, as Bloomberg recently reported, Russia’s President, Vladimir Putin – known for his strongman persona and leadership style – is unlikely to bend to the will of the Saudis.
‘Putin is known for not submitting to pressure,’ noted Alexander Dynkin, President of the Institute of World Economy and International Relations.
Australia’s economy is poised to contract
Finally, looking to quantify the economic impact of the coronavirus, Goldman Sachs this week released a piece of market research outlining to what degree they expect Australia’s Gross Domestic Product (GDP) to be impacted by Covid-19.
Ominously titled 'Australia: Coronavirus containment to crunch economy', the investment bank posited that Australia’s GDP will fall by 6% in CY20, representing ‘the sharpest annual GDP contraction since the great depression of the 1920s.’
Goldman further noted that spending in the discretionary category would likely be hit the hardest – falling between 10% and 40% overall. Lastly, as a consequence of social isolation policies, the investment bank sees electricity & gas, as well as food expenditure increasing ~20% in 2020.
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