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Investing Psychology


Abnormal Market Activities in an Unprecedented Time

Abnormal Market Activities in an Unprecedented Time

Jay Swami

Abnormal Market Activities in an Unprecedented Time

COVID-19 has led to abnormalities in several stock market activities: trading volumes have reached new highs despite a market sell-off, initial capital has fallen relative to its 2019 comparison, whilst secondary capital has increased, and the number of Initial Public Offerings (IPOs) has significantly reduced. These irregularities can be accounted for by factors that commonly occur during a downturn as well as emerging trends due to technological advancements.

ASX Trading Volume

In March 2020, a large sell-off occurred with month trade volume reaching a high of 67,499,988. This was more than double the March 2019 figure. The increase can be accounted for by the rise in retail investors. During the March period, new accounts represented 21.36 % of all active accounts. Retail investors are joining the market with a bargain hunting perspective, attempting to capitalise on lower stock prices. With technological improvements, it is easier than ever to trade on the stock market due to higher speeds, lower transaction costs and access to more in-depth information.


Figure 1 ASX Table: source, asx.com.au

Initial and Secondary Capital

With Australia experiencing a recession, initial capital has fallen significantly relative to last year. During an economic downturn, there is less incentive to start a business due to a systematic growth obstacle as well as the tendency to increase cash position. On the other hand, secondary capital has greatly increase compared to last year, more than doubling the number on a period-on-period (PoP) basis. Smaller businesses are running low on cash and seek capital to survive, whilst larger businesses look to improve their balance sheet. Firms with high cash reserves will look to acquire companies as their market valuation will be lower. This occurs as business earning expectations are revised and a more conservative risk assessment leads to higher discount rates.

DateInitial Capital ($m)Secondary Capital ($m)
May 207.427334.72
Apr 2096.6513334.41
Mar 201062.592116.60
Feb 20103.682044.94
Jan 2085.84849.79
DateInitial Capital ($m)Secondary Capital ($m)
May 192047.962794.55
Apr 191188.382315.55
Mar 19130.213990.24
Feb 19112.361143.50
Jan 1934.6120.25

Figure 2 Initial Cap vs Secondary Cap Table (2019 and 2020), source: asx.com.au

During the 2008 global financial crisis (GFC), we also observe that initial capital plummeted while secondary capital increased.

DateInitial Capital ($m)Secondary Capital ($m)
Dec 080.013,084.1
Nov 080.08,344.3
Oct 08184.66,659.3
Sep 0824.22,620.0
Aug 08140.15,763.9
Jul 081,051.65,003.4
Jun 08238.64,967.3
May 08178.72,623.6
Apr 084.14,315.5
Mar 0887.82,724.3
Feb 08193.792,497.16
Jan 08354.241,416.24

Figure 3 Initial Cap vs Secondary Cap Table (2008), source: asx.com.au

Initial Public Offering (IPO)

The number of companies that has listed in 2020 has dwindled since last year, with just 15 occurring 6 months into 2020. Figure 4 shows the number of companies that has gone public in the last few years. Firms IPO to grow and expand their business, instead, during a downturn firms will target survival and undergo limited growth. This incentivizes companies to defer their IPO on the hopes of higher company valuation from improved earnings expectation and a smaller discount rate.

YearNumber of IPOs

Figure 4 Number of IPOs Table, source: IPOwatch.com.au

These abnormal activities in the stock market reflect the unprecedented changes happening around the world from the COVID-19 pandemic. Whether some of these irregularities are here to stay, or a one-off blip in the grand scheme of things, only time can tell.

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