Market Rebound Halts Virus Sell-off
The past week has evidenced the ubiquitous effects of the coronavirus outbreak with major equity indices entering a correction phase and posting their worst week of trading following the 2008 Global Financial Crisis. The Dow dropped 12.4% with burgeoning recession fears also depressing the S&P 500 by more than 11%. Whilst the probability of the US economy to experience a recession is low, Goldman Sachs forecasts GDP to decrease to 0.9% in Q1 2020 and 0% in Q2 2020 before subsequently increasing. The effects of the coronavirus have translated to US treasuries surging (lower yields) and gold also making new highs, hence highlighting the demand for safe-haven assets. The copper to gold ratio, which is an indicator for the health of the global economy, continued its slide down indicating a weakened outlook for global markets. Closer to home, the S&P/ASX 200 posted its seventh consecutive decline after record highs on February 20, closing lower at 6391.5 points. Typically, and as history demonstrates, markets are expected to rebound from the high selling pressure and the subsequent correction as investors search for opportunities to ‘buy the dip’. This relief was realised with US indices rebounding significantly on Monday as the Dow posted its largest gain in history, in contrast to its largest one-day drop in history last Thursday.
US equity indices realised substantial gains following an eventful week where widespread coronavirus fears has seen global equity indices erase their year-to-date gains. Monday’s close saw the Dow rally 1,294 points or 5.1% higher, which ended a seven-day losing streak, and the S&P 500 Index following suit after surging 4.6%. The Nasdaq Composite also closed higher up 4.5% on the previous trading day. The sharp rebound was accelerated after reports of G-7 finance ministers and central bankers holding a teleconference on Tuesday to discuss their response to the global coronavirus outbreak. The main discussion point of the teleconference surrounds the possibility of implementing a coordinated central bank easing with the US Federal Reserve signalling their intention to cut rates if the virus’s risks increases. Investors interpreted this as an action that won’t necessarily halt the threats of coronavirus to global markets but instead could provide stability in financial markets and facilitate growth.
ASX 200 index declined by 9.77% in the last week of February. Here are how some of Maqro recommendations have fared during the recent decline.
ANN’s share price dropped by 6.06% in the last trading week of February, outperforming the market by 3.71% in that period. ANN is a healthcare sector company that sells protective equipment. ANN’s strong balance sheet and substantial cash inflow provides it with the ability to make further strategic acquisitions (with the most recent acquisition on Careplus done at the start of the year 2020) and share buyback programs to increase value for its shareholders. In light of recent affairs, ANN is working closely with Chinese authorities to manufacture and allocate protective clothing, effectively fast tracking its regulatory and import process to expedite supply.
JBH’s share price declined by 8.55% in the last trading week of February, outperforming the market by 1.22% in that period. JBH is a strong specialty retail company in the Consumer Discretionary space. Its earnings momentum is driven by its market share dominance. The recent acceleration (from quarterly earnings report) in same-store growth across all its business segments, improved execution and online expansion will likely provide it with resilience towards a tough economic environment
GMG’s share price dipped by 8.60% in the last trading week of February, outperforming the market by 1.17% in that period. GMG is the largest company in the Australian real estate sector with strong investment earnings and substantial assets under management. The company’s development pipeline is well positioned for future growth as global demand for warehousing is expected to accelerate.