From IPO to BNPL – how FOMO trades are pumping the ASX

Fear-of-missing-out trades are inflating the ASX, but some analysts warn there’s a year of reckoning coming.

Surely we can’t over-inflate this thing.

The S&P/ASX Emerging Companies (XEC) Index, like the benchmark S&P/ASX 200 (XJO), is composed of 200 Australian companies.

Over the past five years the top 200 have gained 24%. The small caps index more than

doubled. 

Unreliable in a crisis, the S&P/ASX 200 ended the final eight sessions of March higher – its

longest consecutive winning streak in five years and slightly bonkers, considering our

macroeconomic precarity, but markets will set records.

We got close in 2019, but on Day Eight, Reuters spooked global markets with the news that phase one of the US-China trade deal wouldn’t be ready for a summit. 

Worry, but not as we know it. So let’s recap. 

Calendar 2017. The ASX All Ordinaries index is up 6%. The benchmark, 11.5%. ​​

The S&P/ASX 200 Information Technology Index (XIJ) and the S&P/ASX 200 Health Care

Index (XHJ) both gained 26%. WiseTech Global (ASX:WTC) up 122%. 

Verge’s XVG coin, 1,582,000%.

2018, year of the float, 100 companies listed.

A tsunami of IPOs, the most in well over a decade. 

Also an indicator of the impact fintech, and BNPL would soon have, because while 60 companies joined the exchange in 2019, most finished the year higher and were of a distinctly fintechery-flavour. Crypto lost 73%.

At 21%, CY2019 delivered (at the time) the third best return behind such hits as the 31% post-GFC classic of 2009 and just behind 2004’s smells like a mining boom (23%.) 

Crypto won 82%.

Little did we know what lay around the corner.

The telling aspect of 2019 was strong gains on thin foundations. Gains eked out of a tired global economy, bored by the needless-endlessness of that US-China trade thing.

Growth slowed to decade lows.

On the weakening outlook, the Reserve Bank started at the cash rate, and out of this stagnant climate familiar names climbed the bourse, like Sezzle, Openpay and Splitit.

But the BNPL story is about the cycle’s market-darling and first mover, Afterpay.

Afterpay introduced buy-now-pay-later to a willing new generation of investors and users who became both locked in and living on borrowed moments – buying now and paying later – tapping the fiscal zeitgeist.

The stock listed at one Aussie dollarbuck in 2016 and ended 2020 at $116. Up 11,500%.

Last year, with blood in the water, US fintech Square swallowed Afterpay for $39 billion and the sector has been consolidating – or jumping the shark – ever since.

 Medtech Osteopore listed in September ending the day 250% higher and foreshadowed the advent of Australian med and biotech as the genuine opportunity it’s regarded today.

Big in the States, radiology software maker Pro Medicus (ASX:PME) shares are up 800% in five years.

Then in March we met Covid-19. The market collapsed circa 30%. The market got back up, the market kept climbing and then started running about. 

Lively, but dangerous. In calendar 2020 the average ASX stock returned 13%, but the 100 best-performing stocks returned an average of 394%. Property went nuts. Again.

It was a time of epic surprise where many of the best performing stocks thrived despite the pandemic and in many cases because of it.

Crypto gained 302%. SPACS attacked and ETFs were de rigeur.

While Covid presented a bunch of challenges for a bunch of sectors, few picked battery metals as the beast it is becoming.

The growing application of new metals – and old – from graphite to nickel in EV batteries has opened up a commodities boom of a distinctly different shape.

Last week, Pilbara Minerals (ASX:PLS) auctioned off a cargo of spodumene for US$5,650 a tonne. Under a year ago, the average price was US$600. 

Always good for a premonition, soon-to-be Twitter boss Elon Musk called for increased nickel production – a move which helped Chalice Mining (ASX:CHN) lead 2021’s long-list of new metals winners, up 2,140%.

Looking ahead then for 2022, and in the wake of war, pestilence, cheap money and Elon, it’s no surprise most analysts are expecting a year of reckoning.

Morgan Stanley, for example, reckons we’ll cop it. And is subsequently overweight energy, non-bank financials and healthcare.

JP Morgan is sticking with value and cyclicals but like anyone looking for some sort of reckoning has a preference for the red light district of investing – some of those Emerging Companies participants and more particularly, emerging markets – where the broker says there could be upside to the tune of more than 20% this year.

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