Investors sweat after placing big share market bets

Everyday investors – pumped up by big returns from the Covid-19 crash – are now making big bets on the tariff war.

As fund managers sold out of falling share markets this week, ‘mum and dad’ investors rushed in.

At online brokers, where independent investors dominate, there has actually been more buying than selling — a stark contrast to the big end of town.

Share investors – especially younger investors – have been placing their money on beaten down blue chip stocks, believing the current downturn will mirror the last ‘crash’ back in the Covid-19 crisis of 2020.

Plucky bargain hunters who went into shares as the markets were spiralling downwards in 2020 were well rewarded. Share markets plunged 30 per cent but had fully recovered less within 14 months.

The danger for investors who have moved in quickly to bargain hunt this time around is that the tariff war triggers a downturn not like 2020, but instead mirrors 2008.

Back then, the global financial crisis triggered an extended decline and Australian shares dropped by 50 per cent from November 2007 to March 2009 – it took a decade for the ASX to recover fully.

The ASX has lost billions, like other stock markets around the world, as the global trade war intensifies. Picture: Dan Himbrechts/AAP Image

Fund managers are split over the nature of the latest downturn, some believe it is simply an economic shock similar to the emergency that shook the world in 2020 while others believe it could be the end of an era where the US underpinned world trade – they point to deep concerns such as US bond prices falling this week as share prices fell at the same time.

For now, the early-bird bargain hunters will have to sweat it out, as the share market has not yet rebounded from the sharp downturn triggered by US President Donald Trump’s ‘Liberation Day’ tariffs.

After another unchanged session on Wall Street overnight Tuesday, the S&P 500 is down around 15 per cent for the year to date, with the ASX 200 looking relatively better – down almost 10 per cent.

So what have bargain hunters been buying?

Stocks considered highly ‘defensive’ are bouncing higher – Coles is up 10 per cent this year to date, Medibank Private is up 13 per cent.

Mom and Dad investors are also pouring money into BHP. The big four banks and traditional Exchange Traded Funds which mirror market indices – even as those ETFs are down in line with the wider market.

Investors have also been buying ETFs specialising in gold bullion, which have been among the standout performers of the year to date.

Gemma Dale, director of investor behaviour at nabtrade told The Australian’s Money Puzzle podcast that “Monday was our largest trading day ever – and it was absolutely more buying than selling.”

“Similarly at online broking firm, CommSec, the opening session this week on Monday saw 69 per cent of trades by volume were buy transactions”.

Ms Dale says “everyday investors have built up cash positions in recent times, much more than big super funds would have – they are now bargain hunting faster.”

But for the market to turnaround – as it did after the Covid crash – heavyweight institutional investors need to start buying again in big volumes.

Some fund managers suggest offshore institutional investors may soon find the ASX attractive.

Datt Capital’s Emanuel Datt said in valuation terms, “Australian shares continue to trade at a discount relative to their US and European counterparts, particularly when measured in US dollar terms”.

“In US dollar terms, Australia offers significant value. Relative to the US and Europe, our market remains undervalued, which is increasingly catching the eye of global value investors,” he said.

Australians independent investors will be hoping that is the case.

James Kirby hosts the twice-weeklyMoney Puzzle podcast