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Come 2020; Widely spread of COVID-19 has tumbled almost all the stock exchanges across the globe. The Australian equity market fell by ~36.5% (S&P/ASX 200, benchmark equity index of ASX) from its maximum A$7162.494 on 20 February to lowest A$4546.035 on 23 March 2020. The investor sited relieve from heated market post rebound of index price to A$5113.287 on 26 March 2020 after reaching itslowest point since 2017.
The relief came, one because of the fact that many Countries went ahead with cutting interest rate to maintain the money flow in the market and second because of the slipping US$ over the panicked search of liquidity among the investors uplifted the £ (pound), € (Euro), ¥ (Yen) and A$ (Australian dollar). However, the equity market is still not fully confident to rise straight but fluctuation is seen due to the investor's priori sentiments. The S&P/ASX 200 is currently at 5252.28 on 07 April, up by 15.5% from the lowest value of 23 March 2020.
As if the blow of COVID-19 was not enough, the crude oil war between Russia and Saudi Arabia further dwindled the equity, debt, commodity as well as currency market. The Brent Crude (BZ: NMX) tumbled by 62% from US$59.31/bbl on 20 February 2020 to US$22.76/bbl on 30 March 2020, later the price went up by ~40% to trade at US$31.87 as on 07 April 2020. The huge market collapse with magnitude comparable to 1987's Black Monday stock market crash has diminished the confidence in the market.
The January 2020 figures of State Street Investor Confidence Index (ICI) reduced the global ICI by 3.2 points from December's reading of 79.7 to 76.5. Whereas, the North American and European ICI, dropped from 71.6 to 68.2 and 109.4 to 105.5 respectively. The Australia Westpac Consumer Confidence Index is tumbled to 91.9 in March, i.e. 3.8 points short of February 2020. The consumer sentiments survey from Westpac-Melbourne Institute demonstrated that in the grappling financial market, investors are more interested in the near-term outlook of the economy than the long term or stay worried about their finances. This is somewhat correct as the impact of virus seems to temporary and also Professor Kelly, Deputy Chief Medical Officer, stated that the infection rate of coronavirus is flattening.
Interesting Read:Mining Metals Outlook Post COVID-19.
Let's now investigate through the Large-Cap, Mid-Cap and Small-Cap stocks.
The Vanguard MSCI Australian Small Companies Index ETF (ASX:VSO) tumbled by 41%, S&P/ASX Mid-Cap 50 (ASX:XMD) fell by 41%, and S&P/ASX 50 (ASX:XFL) dropped by 35% between 20 February and 23 March 2020. The market later rebound by 19.91%, 21.08% and 14.37% for VSO, XMD and XFL respectively from 23 March to 07 April 2020.
From above we see that the XFL, representing a large-cap component of ASX, the market dwindled lesser in comparison to small-cap and mid-cap stocks. However, the recovery post 23 March is lower in case of large-cap or blue-chip stocks in comparison to the other two. This is because when the economy rebounds, the market will regain the position in proportion to the share it losses in the crisis.
However, seeing the market fluctuation, it is advisable to invest in the blue-chip stocks, which, of course, varies with the investors’ risk-taking capability. Having said that, the S&P/ASX 300 Metals and Mining (ASX:XMM), S&P/ASX 200 Telecommunication Services (ASX:XTJ), S&P/ASX 200 Health Care (ASX:XHJ) and S&P/ASX 200 Financial (ASX:XFJ) to mention few, fell by ~28%, ~26%, ~23% and ~44% respectively in the same interval. Whereas XMM, XTJ, XHJ and XFJ rebounds post falling by 17%, 7%, 12% and 16% respectively between 23 March to 07 April 2020.
By glancing through the different indexes, it is quite notable that XMM is better in comparison to others. Telecommunication stocks though depicted lesser fall than XMM and XFJ, hadonly around 7% of the stock recovery, i.e. too low in relation to other stocks in consideration.
The other index which have performed extremely well is S&P/ASX 200 Utilities (ASX:XUJ) which witnessed a drop of 21% between 20 February to 23 March 2020 and rebounding by 11% as on 07 April 2020.
Must Read: 4 growth stocks to view in the present scenario.
S&P/ASX 300 Metals and Mining (ASX:XMM)
The major export markets for Australia is China (A$111 billion) followed by Japan (A$51 billion), South Korea (A$22 billion), Taiwan (A$17 billion) and India (A$14 billion), contributing around 28% in Country’s GDP growth in FY19. Also, Australia mining sector contributed around 73% in Country’s total goods export for the financial year 2018-19.
Source: Department of Industry, Science, Energy and Resources
Therefore, blue-chip S&P/ASX 300 Metals and Mining may give investor stable return in this highly uncertain environment seeing the industry relation with China. The world knows that the COVID-19 cases in China have improved, lockdown is eradicating, and shops are re-opening also the flattening Coronavirus case in Australia is likely to strengthen the Australian equity market in the near term.
Good Read: COVID-19: Would You Abandon Stocks in A Market Slump.
Hence, blue-chip stocks in the field of health care, utilities as well as resources index seems to be performing better than the other index taken into consideration in this Article.
Let’s now peep though the performance of large-cap resources stocks listed on ASX: -
BHP Group Limited (ASX: BHP) – The stock has returned 4.86% in the last five days. The stock is presently trading at A$31.920 on 08 April 2020 (AEST: 03:12pm) with a P/E ratio of 11.94x and EPS of A$2.655. Its 52 weeks high and 52 weeks low stand at A$42.33 and A$24.050, respectively, and has a market cap of A$93.38 billion.
Newcrest Mining Limited (ASX: NCM)– The stock has returned 11.32% in the last five days. The stock is presently trading at A$25.90 on 08 April 2020 (AEST: 03:12pm) with a P/E ratio of 25.02x and EPS of A$1.041. Its 52 weeks high and 52 weeks low stand at A$38.87 and A$20.70, respectively, and has a market cap of A$20.04 billion.
Woodside Petroleum Limited (ASX: WPL) –The stock has returned 7.94% in the last five days. The stock is presently trading at A$21.40 on 08 April 2020 (AEST: 03:12pm) with a P/E ratio of 40.47x and EPS of A$0.524. Its 52 weeks high and 52 weeks low stand at A$37.55 and A$14.93, respectively, and has a market cap of A$20.23 billion.
Rio Tinto Limited (ASX: RIO) –The stock has returned 2.55% in the last five days. The stock is presently trading at A$90.40 on 08 April 2020 (AEST: 03:12pm) with a P/E ratio of 12.92x and EPS of A$7.014. Its 52 weeks high and 52 weeks low stand at A$107.79 and A$72.77, respectively, and has a market cap of A$33.65 billion.
