The ASX200 fought hard yesterday to close marginally higher in the face of some aggressive selling across the tech space, it felt like many investors / traders who were long high valuation growth names decided to take a hint from Bitcoins 25% plunge over the weekend i.e. if in doubt get out! The were a number of prominent losers in these high Beta names including Zip (Z1P) -10.1%, HUB24 (HUB) -4.4%, Allkem (AKE) -7.2% (which is the old Orecobre), Kogan.com (KGN) -6.6%, Appen (APX) -5.4% and Afterpay (APT) -4.3%.
NB A high Beta stock is one that tends to magnify moves by the index i.e. if the index falls 3% it might fall say 6%.
If we put yesterday’s movement under the normal microscope it would throw up some fascinating anomalies across the stock and sector level, the standout theme being bond yields drifting lower failed to support all of the sectors you would typically expect i.e. The Real Estate and Utilities Sectors did rally but the Tech & Healthcare Sectors struggled with the former getting whacked. The rotation was simple dump risk in favour of more traditional value stocks or in other words investors were buying traditional stocks which make a steady profit and pay a sustainable dividend i.e. pockets of the market which have underperformed since we heard of COVID.
Another factor which potentially weighed on the higher risk pockets of the market were margin calls, I’m sure there were plenty of crypto traders licking their wounds on Monday morning following the weekends carnage experienced by Bitcoin et al. Traders with large exposure to risk could have easily been caught across the curve from cryptos to BNPL and tech in general hence this could have thrown some fuel on the already struggling sector – its impossible to know if this was a meaningful contributor but I’m confident it was from a sentiment perspective.
US equities have surged overnight with the Dow rallying almost 1000-points from early weakness to close up over 1.8%, all 11 S&P500 sectors closed positive but the Resources and Financials were the standouts. The catalyst for the gains were further reports that the Omicron variant was proving mild in nature with South African hospitals not being overwhelmed. The SPI Futures are calling the ASX200 to open up around 55-points this morning and I wouldn’t be surprised to finally see some follow through buying today.
MM remains cautiously bullish the ASX
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