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How investors are playing the correction

With stocks under pressure, are investors going to cash?

Volatility has returned to the market, with the ASX200 down over 2% during trade on Thursday, before closing down 1.77% to finish at 6838 points. The local market has lost nearly 7% over the last week, and has entered a technical correction, having fallen more than 10% from its August highs. This follows similar falls on Wall Street, with the S&P500 now having erased all gains since July 2021, and the Nasdaq heavyweight Netflix down nearly 50% from its highs.

Markets are flailing as investors process Fed Chair Jerome Powell’s statements that all but confirm a March interest rate rise, and the end of asset purchases that have provided support to the stock market to varying levels since the Global Financial Crisis. The inflationary pressure that is forcing the Fed’s hand is not being helped by Russia’s ambitions in the Ukraine, which has driven oil prices to their highest level since 2014. While the Reserve Bank of Australia is hoping to see significant wages growth before we can expect much higher interest rates, local consumers can expect rate increases in 2022 and global sentiment will continue to affect the local share market. 

So how are investors like you responding to the volatility? Certainly not by hiding under a blanket. Volumes on nabtrade have doubled in recent weeks, as investors hope to find bargains in companies hit hard by the volatility. For those unwilling to take stock specific risk, we’ve seen a huge rise in buying of the ASX200 in index form, with Vanguard’s VAS exchange traded fund among the most bought securities. For those concerned about further volatility, and seeking a hedge or trying to turn a quick profit, Betashares’ Strong Bear Hedge Fund (BBOZ) has also re-entered the trading numbers.

While Fortescue Metals Group (FMG) remains the most traded stock by value most days, weakness in perennial favourite CSL (CSL) has brought out the buyers in huge numbers. CSL closed Thursday below $250, just above its 52 week low and around its Covid lows. For those with longer memories, CSL was trading around $350 prior to the Covid crash; while its proposed purchase of Swiss giant Vifor Pharma has resulted in a huge capital raising and increased debt levels, broker Citi has a price target of $340 on CSL and believes its acquisition will be broadly positive for the firm. Nabtrade investors were huge buyers on Thursday.

 

CSL Share Price over 12 months

Source: nabtrade

 

Banks have been of relatively little interest to nabtrade investors over the last six months, with the exception of Westpac (WBC) which fell more than 10% on a disappointing full year update in November, and was a strong buy. This week’s volatility has brought out those wanting to top up their financials exposure, with Westpac again the preferred choice of the Big Four, even topping the most traded stocks on Tuesday. Commonwealth Bank (CBA) was a strong buy under $95, while Nab (NAB) was actually sold on Thursday. ANZ (ANZ) is some way down the list as the least popular of the top tier financials. Macquarie Group (MQG) has recently traded as high as $217; it fell 3% on Thursday to be a popular buy around $180 a share.

 

Macquarie Group Share Price over 12 months

Source: nabtrade

 

The soaring oil price, expected by pundits to top $US100 a barrel if sanctions are imposed against Russia for continuing hostilities against Ukraine, has bolstered the energy sector, with Woodside Petroleum (WPL) and Santos (STO) up 2.5% and 3.5% respectively on Thursday. Typically contrarian nabtrade investors took profits or trimmed their positions.

On international markets, weakness in popular names has brought out the buyers – but Tesla (TSLA.US) remains investors’ top pick. The stock is down 14% this month and is trading around its price last October, but a strong production report has buoyed the share price at the time of writing. Three quarters of trades are still buys. Vaccine maker Moderna (MRNA.US) has announced it is commencing a trial for an Omicron-specific Covid19 booster shot, which delivered a small boost to the company’s share price. Moderna shares are up just 2% over 12 months, and are down more than 50% from their highs – nabtrade investors have been buying.

 

Moderna Share Price over 12 months

Source: nabtrade

 

 

Analysis as at 27 January 2022. This information has been provided by WealthHub Securities Ltd the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). Whilst all reasonable care has been taken by WealthHub Securities in reviewing this material, this content does not represent the view or opinions of WealthHub Securities. Any statements as to past performance do not represent future performance. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, we recommend that you consider whether it is appropriate for your circumstances. This article does not reflect the views of WealthHub Securities Limited.


About the Author
Gemma Dale , nabtrade

Gemma Dale is Director of SMSF and Investor Behaviour at nabtrade. She is the host of the Your Wealth podcast, a fortnightly podcast for investors, featuring insights and updates from markets and finance experts across a range of topics. She provides regular market and finance commentary on ausbiz and in other media including AFR, the Australian, ABC and commercial tv and radio. Gemma was previously the Head of SMSF Solutions for nab, and the Head of Technical Services for MLC, where she led a team of specialists providing advice to advisers and their clients on SMSF, super, tax, social security and aged care.