Australian shares weren’t spared from a reality check on the global outlook amid record coronavirus cases in Europe and the US, no proven vaccine yet, and interminable delays in US fiscal stimulus.
After falling as much as 2 per cent intraday, the S&P/ASX 200 finished down 1.7 per cent at 6051 points, its lowest close in three weeks and its biggest one-day fall in four weeks, with the breadth of declines versus gains at its worst level since early September.
The technology, energy, materials, consumer discretionary and industrials sectors were pummelled by sharp falls offshore, even though Australia’s outlook is vastly better than Europe and the US and is in any case tied more to China, where the virus is under control and growth is picking up.
With domestic COVID-19 cases near zero, Victoria easing mobility restrictions, state borders likely to reopen soon, supportive Australian fiscal policy and the Reserve Bank expected to cut rates and expand its asset buying next week, the local bourse should outperform on any bounce in global markets, particularly in the event of positive coronavirus vaccine developments.
And with 10 coronavirus vaccines in stage-three trials, investors could soon switch their focus back to the prospect of an economic rebound fuelling a switch to value stocks, even if that lessens some of the valuation support for stocks that have benefited from the switch to online shopping.
The negative impact of the pandemic on multinational software giant SAP, and subsequent 22 per cent plunge in its share price, was a big shock, but its outlook will also change with vaccines.
On Monday the S&P 500 bounced off an uptrend line drawn from the March low but that support line could remain under pressure before the US election.
The Australian market, which has been left behind by the US market since March, has very strong support on the chart from former resistance and moving average lines around 6000 points.
Yet there was an obvious lack of conviction on the part of buyers on Tuesday as the S&P/ASX 200 fell sharply on relatively light volume compared to the size of the fall.
At least there may be some greater conviction that the worst is behind the banks after ANZ’s disclosure after the close of $528m of new charges in its second-half results on Thursday.
ANZ was the last of the banks to disclose writedowns and provisions before their results.
It’s worth noting the recent resilience of the banks in the face of these profit warnings.
It suggests that the bad news has already been priced into their share prices.
Of course, there are still some major risks around the US election next week.
A contested election result may be the worst possible outcome, as it would further delay fiscal stimulus and potentially fuel social unrest in the US.
However, investors might also be briefly upset by a return of the status quo or even an inability by Democrats to get the clean sweep that has recently been priced in, although Republican control of the Senate might turn out to be the best of both worlds for risk assets.
More Coverage
It’s a better bond market or bust, says industry working group
Once bank AT1 notes leave the retail bond market, investors will be left with six options and more needs to be done to offer retirees alternatives for income, a joint industry working group says.
How big tech is recalibrating around the DeepSeek threat
Silicon Valley owes its longevity to its ability to pivot and China’s new AI start-up could set it moving in a new direction.