The ASX had a turbulent week, setting a new 20-day low and shedding 2.26% or 17.90 points to 6,983.40.
We weren’t the only ones to feel the heat; the FTSE100 and Nikkei 225 struggled even more over the last five days, losing 5.96% and 3.38%, respectively.
The Hang Seng and the S&P500 managed small gains, up 0.45% and 1.06%, while the Nasdaq flourished, adding 3.34% to the index over the week.
The Australian sectors were, unsurprisingly, down across the board, with Energy (-5.40%) performing the worst and Healthcare the best, just scraping into the red with a 0.09% dip.
Commodities were more mixed; none lost more than West Texas crude, down 9.74% for the week and 31.35% for the year, but the base metals of aluminium, copper, nickel, lead, tin and zinc all fell.
Silver was the winner this week, lifting by 8.51% with smaller gains for the rest of the precious metals: gold (+4.87%), palladium (+3.64%) and platinum (+3.52%).
In the news this week
Fear may drive ASX lower
It’s commonly accepted that while markets are things of hard numbers and logical algorithms, investors are not.
Wealth Within chief analyst Dale Gillham offers insight into how investor behaviour could impact the ASX going forward.
“Unless you have been living in a bubble, you would be aware that the Australian stock market has been falling over the past five weeks,” Gillham said.
“In the last six trading days, it has fallen over 6%, which has caused many investors to become fearful and act emotionally by selling stocks in the hope of trying to avoid further losses.
“To understand why people do this, we need to look at behavioural finance, which explains why human emotions and cognitive biases influence our financial decision-making.
“One of the most powerful emotions driving our financial behaviour is fear, which causes investors to panic and make irrational decisions like we are experiencing now. But acting irrationally in the stock market can negatively impact your returns.
“In a bull market, investors tend to display behaviours such as a herd mentality and FOMO but when the market is bearish, they have a fight or flight response due to loss aversion.
“While most investors know that reacting to our emotions is not the best strategy, unfortunately, most don’t know how to change their behaviour. That’s because overcoming fear is not easy, as it’s hard wired into us and for good reason.
“That said, overcoming fear is essential if you want to make rational decisions based on sound investment principles.
“There is a saying that ‘knowledge is the enemy of fear’ because if you know what to expect and how you will react prior to a situation occurring, you can make better decisions.
“If investors knew that today would be the end of the fall and that over the next three months the market would rise 30%, I dare say that many, if not all, would not exit the market. Instead, they would take the opportunity to buy more shares.
“While I’m not suggesting the market will do that, I need to emphasise that investors shouldn’t be swayed by short-term market fluctuations, which is what I believe is occurring right now.
“Remember, the market fell over 10% between August and October last year and over 6% between December and January of this year.
“As I often say, if you want to be successful in the stock market, it’s important to gain the right knowledge, have a workable trading plan and trust the plan.
“This will help you to move through volatile times with confidence and, in the end, achieve better returns.”
What's next for the Australian stock market?
“Regular readers know that I always say you need to wait for confirmation of a move rather than act on speculation and the All Ordinaries Index has certainly proven this statement to be correct in the past couple of weeks.
“Currently the market is down just over 4% for the month and around 8% since the last high in early February.
“This week, the All Ordinaries Index has fallen to a low of 7,100 points which is slightly below the lower end of my target zone for the low, which was between 7,200 and 7,500 points.
“Obviously, there are two scenarios that can occur from here, and one is that the market stops falling and starts to rise again.
“For this to occur, I would expect it to start any day now and a strong close on Friday will strengthen my thinking around this.
“The other scenario is that the fall will continue and while it’s not the most preferable scenario, we do need to consider it.
“If the market does continue down, we need to expect the low will occur sometime in May and to fall below 7,000 points and possibly as low as 6,000 points.
“One thing to be mindful of is that we can’t control the market, we can only control what we do and how we react.
“We also need to understand that no one is 100% accurate in their analysis as to how the market will unfold, and as such, you need to put rules in place that allow you to manage both scenarios.
“For now, good luck and good trading.”
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice.
Is the international banking sector in distress?
Global markets have been in turmoil this week, rocked by multiple bank closures and the threat of more.
Blossom investment manager Christian Baylis offers insight into the developments in global banking and what they mean for Australia.
“SVB has been the catalyst for major disruption in capital markets, with Credit Suisse (SIX:CSGN) and other banks caught up in the dislocation,” Baylis said.
“Credit Suisse was susceptible to this disruptive event and is suffering from a crisis in confidence due to poor balance sheet management, risk and compliance failures and a series of management failures.
“SVB has pushed Credit Suisse to a forced resolution – and we believe there is no longer an opportunity for it to trade its way out of this.
“Government assistance will be required and a bailout is imminent.
“The impact of this in Australia will be higher funding costs, and higher deposit rates to attract depositors. The most significant benefit will be for mortgage holders, as we expect this to take the wind out of the sales of the RBA.
“Bond market liquidity is severely dislocated at the moment – meaning those that are in high quality assets will be rewarded.
“Australia will be caught in the vortex of what happens offshore – because ultimately we find ourselves in international markets.
“As the saying goes, the US sneezes and we catch a cold. In practical terms, this will mean lower equity markets and a more restrictive funding environment.
“However, we don’t believe this is the beginning of another crisis like the GFC.
“In fact, it is a different issue altogether. Banks are better placed today than they were back in 2008, but that said, it is all about how people respond to a crisis and this can be difficult to predict.
“At the moment, the response has been quite dramatic and, while the root cause is reasonably innocuous, the response has been anything but that.
What does it mean for retail investors?
Blossom CEO and co-founder, Gaby Rosenberg, offers some ASX-centred insight on the banking chaos for retail investors.
“While Australian banks operate under tighter regulations and boast greater strength, Credit Suisse's struggles will still have consequences here,” Rosenburg said, “The situation contributes to market volatility and weakens investor confidence.
“Weak banking systems can erode investor confidence and the current market sentiment has led investors to reassess the stability of major financial institutions. In the face of uncertainty, investors often re-evaluate their portfolios and adopt defensive strategies.
“Fixed income assets, such as government and corporate bonds, become particularly appealing as they can offer a more secure alternative to equities.
“We see investors focus on capital preservation and diversification to safeguard themselves during market turbulence.
“In the current climate, the bond market is facing considerable disruption, which benefits those holding high-quality assets like those in Blossom Fund.
“More accurate pricing of assets enables us to capitalise on higher overall yields and bolster medium-term performance.
“We are confident in our strategy and well-prepared to navigate uncertain times.”
Small cap wins for the week
It was a difficult week for small caps, with the Small Ords falling 5.13%, a full 2% more than the ASX200. Despite that, some were still able to gain ground.
Moho Resources soars 26.6%
Moho Resources Ltd (ASX:MOH) shares gained against the tide this week, up 26.6% over the last five days after completing an aircore drilling program targeting gold and rare earth element (REE) mineralisation at its Burracoppin Project in Western Australia.
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GTI Energy jumps 10%
GTI Energy Ltd (ASX:GTR) shares lifted 10% this week, buoyed by the purchase of valuable historical data for the Lo Herma Uranium Project and a subsequent $1.35 million capital raise.
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Meeka Metals gains 7.5%
Meeka Metals Ltd (ASX:MEK) shares grew by 7.5% over the last five days, following the company’s confirmation of high-grade gold at the Murchison Project’s St Anne’s prospect, and an expansion of mineralisation at the Circle Valley Gold Project.
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