A renewed wave of heavy selling slammed the ASX, wiping $32 billion off the benchmark yesterday, with technology and healthcare stocks falling sharply on fresh doubts over some of the market’s most highly valued companies.
The worst one-day performance for the Australian since a 2.8 per cent slump on October 25 took the index back to where it was trading around three weeks ago and dampened investor hopes that the short and savage bouts of selling seen last month are a thing of the past.
ASX technology stocks suffering steep losses included Afterpay, which dropped 6 per cent to $11.75 and Appen, down 4.3 per cent to $11.20. Healthcare stocks under pressure included CSL, down 2.6 per cent at $187.89, and Cochlear, down 4.2 per cent at $168.02.
Heavyweight banks and miners fell hard as well, with BHP Billiton losing 1.7 per cent to $32.85 and Macquarie Group down 2.1 per cent at $119.43. Westpac traded ex-dividend and lost 5.4 per cent to $26.24 after the Federal Court rejected a settlement offer from the lender.
The 1.8 per cent drop in the S&P/ASX 200 index to 5834 followed a sharp selldown for US stockmarkets at the start of the week’s trading.
Technology stocks were also at the forefront of a day of losses for the American market during which the Dow shed more than 600 points and the Nasdaq slid almost 3 per cent. US futures were pointing to a pause on Tuesday.
Trade tensions simmer
Apple shares fell heavily after one of the technology giant’s suppliers – Lumentum Holdings – slashed revenue and profit forecasts citing reduced orders from a “major customer”.
Many Apple suppliers are based in Asia and the Nikkei 225 dropped more than 2 per cent in Japanese trading. Shares of Japan Display plummeted over 11 per cent while Murata Manufacturing and TDK Corp dived as much as 8.9 per cent and 8.4 per cent.
Chinese stocks were off their worst levels, however, amid fresh hopes that the Group of 20 meeting at the end of the month will bring relief over the trade tensions between the China and the US.
The Australian dollar traded at US72.09¢, regaining a bit of ground against the US dollar. The greenback had powered higher overnight, hitting a 16-month high against a basket of currencies.
Currency markets are grappling with a range of fears, from the potential exit of the UK from the European Union to Italy’s budget standoff with the EU as trade tensions continue to simmer between the US and China.
Overlaying asset markets are higher US interest rates. This year investors have accepted that the path for US interest rates is up, after years of post-global financial crisis stagnation at ultra-easy levels.
“You do have tightening after many years and it is playing havoc with valuations,” said Alphinity Investment Management’s Jonas Palmqvist, speaking about global equity markets. “There are a lot of worries about the economic cycle slowing down.”
Within national markets, investors are growing warier about the prospects for the parts of the stock market that have posted the strongest gains. That includes technology stocks and healthcare companies in the Australian share market.
“Some sectors are at really pointy extremes – information technology is the obvious one – there’s literally only been six months in the last 10 years where multiples on the ASX for this sector have reached the levels that they have been at in the last few months. Similarly, healthcare is at a very elevated level,” said Schroder Investment Management’s Andrew Fleming.
“Most sectors that are popular are at very high multiples,” the fund giant’s deputy head of Australian equities added. “The common explanation is growth – it’s the word that hides all sins.”
‘Carry trade of emotion’
But Mr Fleming has challenged the idea that technology stocks, for one, offer investors a way of accessing growth. He has calculated that earnings growth is negative for the information technology sector and said that the sector’s gains have been made on a “carry trade of emotion”.
“What you’re not buying is growth when you are paying those high multiples,” he said. “Really as an investor you have been paid to be re-rated. Your earnings have not done that much.”
AtlasTrend portfolio manager Kevin Hua noted that technology stocks are higher beta, which means that they outperform on the way up and underperform on the way down.
“We are pragmatic. We’re bullish over the longer term but we have taken the opportunity to take some profit,” he said. “There’s still a lot of volatility out there and we are sitting on the sidelines.”
Alphinity’s Mr Palmqvist said the current bouts of broad stockmarket selling around the globe are likely to be more than a temporary wobble.
“We have been living with loose conditions that are now tightening. The impact could be longer.”