Stock Market Update and the impact of the Coronvairus from Richard Hemming
The coronavirus was a catalyst for the huge wave of selling across global stock markets, but the stocks hit hardest have been those that are most expensive. These stocks lifted global stock markets to record levels, which means the entire market was vulnerable to bad news.
These are big moves, being led from the biggest market. So far, the Dow Jones Index has lost over 1900 points, almost 7%, in two days, while the tech heavy Nasdaq has dropped almost as much in percentage terms as the momentum trade has rapidly reversed course.
The biggest falls are being felt by those that experienced the greatest momentum, such as the FAANG or MAGA (Microsoft, Apple, Google, Amazon) stocks in the US and the WAAAX stocks here (WiseTech, Altium, Afterpay, Appen and Xero). But there is wider pain being felt across the entire spectrum, Big and Small Cap alike.
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ASX Stocks: Blue Chips and their Results are good
We’ve analysed the financial results of some 40 plus ASX listed Blue Chip companies this month and I have to say, overall the results have held up, with most ASX stocks matching and beating their profit guidance.
Coronovirus impacting global markets
But it’s obvious that in the past week the macro has trumped the bottom up performance. The share market is more focused on the impact of the coronavirus. It’s important to note that even these big ASX Stocks have relatively little visibility. The companies would have completed their result slide packages just as the coronavirus was starting to escalate outside of China.
We have a situation where the market is cratering and many investors are ignoring companies’ strong fundamentals.
What should Australian Share investors do with their Blue Chips?
Two points need to be made up front. First, don’t panic. These are paper losses and only by selling do you crystallise them. I often talk about fundamental value. This is the real value of cash flow in today’s dollars and is the key to Under the Radar’s search for value. This doesn’t change as quickly as the share market does!
Second, at some point in the near future, particularly if it escalates into a pandemic, you would expect central banks around the world to further stimulate their economies, pumping more liquidity into the markets to ensure that the banks keep their lending doors open. Governments are also likely to pull fiscal policy levers.
Reading our research, you’ll see that we have a number of buying opportunities. We continue to stand behind them, as we do our decisions to hold on. Where we advocate taking profits or selling, we think that this remains correct strategy.
The point we’re making is that the world isn’t going to end.
Past experience, as the Sydney Airport CEO Geoff Culbert pointed out, citing the SARS virus earlier this century, is that the rebound, when it occurred in 2004 was fast:
“The rebound was rapid as soon as the SARS virus was contained. And you had pent up demand that was unlocked as soon as travel bans were lifted and we would expect to see a similar scenario here, for example with the thousands of Chinese students who are waiting to come into Australia to start their school year.”
Now is the time to be preparing for that rebound.
What should Australian Small Cap Share Investors do?
The first thing to say again is, don’t panic and the same advice for Blue Chip investors applies to Small Caps too.
We’re scanning our universe intently for the opportunities that we know are going to arise as individual stocks get thrown out with the bath water. We expect over the next 3-4 weeks to be able to ascertain whether the coronavirus is so bad that buying any stocks is a mistake, OR, which areas of our universe are best positioned to recover fastest OR are able to ride out the storm largely unaffected.
Whatever the case, WHEN and WHERE there are buying opportunities Under the Radar will let our subscribers know.
What you should do now is research in order to position for opportunities. This enables you to dip in on bad days when you know what you’re looking, taking advantage of excessive fear. Thanks to Under the Radar, you’ll know what you’re getting.
Now is not the time to forget about stocks. Now is the time to research them harder than ever. With all Under the Radar’s research on the reporting season, you’ll have plenty of material.
And like Geoff Culbert points out, to prepare for that stock market rebound.