Finding beneficiaries in bear markets. And celebrating International Women's Day
Australian Market Strategist
Summary: With European stocks down 20%, US stocks down 12%, and likely to head lower as the world faces an energy and food crisis, investors are increasingly seeking stocks and sectors that will thrive. Investors are moving toward commodity rich markets, like the Australian stock market and the Brazilian stock market, with both outperforming this year. We explore the stocks leading the charge and what you need to know. Plus, as its international womens day, we look at commodity companies with high amounts of female leadership
Co-written by Market Strategists Jessica Amir in Australia and Redmond Wong in Hong Kong.
What’s happening in equites markets?
It's always a valuable exercise to see where funds are flowing and where they are coming out of. So let's check in, who are the best performers this year?
- Brazil’s market is now the best performing market up 6% year to date; chemical, mining and electricity generation company Bradespar is up the most, up 43%, followed by iron ore giant Vale up 35% this year.
- Australia’s ASX200 is the second best performing market this year, even though its down 5% this year. In the ASX200, coal giant Whitehaven Coal (WHC) is up the most in the ASX200, up 54%. Oil and gas giant Woodside Petroleum (WPL) is up 52% as the second best performer, and you’d expect these gains to be extended until something breaks (.i.e.. unless consumption slows). So, what’s keeping the ASX from making further gains this year? Well the ASX tech sector in Australia is crumbling ahead of rates rising, with Zip (Z1P) share are down 62% with the stock also facing increasing competition. While family tracking app backed by the Phelps family and Bryant family Life360 (360) is down 53% year to date.
So who are the worst performing markets so far this year?
- The world’s biggest market, is the US. Its benchmark, the S&P 500 (US500.I) is down 13% this year, the Nasdaq 100 (USNAS100.I) is down 19% after falling 3% and 3.6% respectively overnight.
- In Europe, the German DAX is down 23%, while London’s market (FTSE 1000) is down the least in Europe (down 9.5%).
- In Asia, Hong Kong’s Hang Seng (HSI.I) is now down 11% this year, China’s CSI300 (000300.I) is down 13% YTD, as its costs of imports grows. Inversely, new stats reveal China's export growth in the first two months of 2022 slowed to +16.3% YoY (vs +20.9% in Dec 2021). The growth of exports to the U.S. decelerating to +13.8% YoY (vs +20.5% in Dec 2021). Export was a major growth driver of the Chinese economy last year but its momentum seems moderating in 2022.
So what to consider now?
- A recession is likely; markets are pricing in that markets are tackling an energy crisis with oil heading towards its record high of $150 (that we last saw in 2008). Secondly, we are amid a food crisis, with wheat price up 50% this year. And thirdly, we have a refugee crisis, over 1.5 million people are displaced from Ukraine. Plus, the US is likely to rise interest rates with a suite of rate hikes. There is so much uncertainty at the moment. And companies are facing an earnings squeeze, with consumer spending, consumer discretionary and tech and airlines companies to do it tough amid rising prices and decreasing sales. Meanwhile, beneficiaries of the crisis, are companies involved in and selling Gas, Oil, Wheat, Palladium and Nickel and Iron ore. These commodities prices will likely continue to rise until consumptions slow.
- It is international women’s day. Our research has found companies with high female leadership outperform massively from a share price perspective. Globally, 6% of companies have 40% or more women in leadership. We found companies with women in leadership, produced a 59% better return over five years. But diving to Australia, there are more women at the top. In the ASX200, most companies have women in leadership. The average board is 33% female. And as commodities are outperforming it’s vital to highlight that commodity companies with high female leadership, include BlueScope Steel (BSL), Lynas Rare Earths (LYC), Fortescue Metals (FMG), Alumina (AWC) and Paladin Energy (PDN).
Need some potential trading ideas?
- Rising wheat prices? How to benefit? With the price of wheat skyrocketing out of control, and some CFD providers stopping clients buying Wheat contracts, there are a couple of alternatives to consider and to advantage of surging wheat prices, which are up 50% this year and likely to rise even further. GrainCorp (GNC) is Australia’s biggest grain seller and its shares popped to an all time. In the US, there is Archer-Daniels-Midland (ADM) a multinational food processing and commodities trading company, which is also benefiting from higher grains and wheat prices.
- Inversely, if you want to take view that Chicken producers like Ingham's (ING) and Tyson Foods (TSN) could see their shares continue to fall as their costs (wheat) rise, then you could consider shorting stocks like these. Why? The price of wheat and Ingham's shares for example, tend to have an inverse relationship. Remember, the biggest cost of growing/raising a bird is the wheat price, so rising wheat, not only hurts consumers, but meat companies.
- We also see a case for investing in fertilizer stocks, like CF Industries (CF) and Nutrien (NTR) as mentioned in yesterday’s APAC Market Digest. Alternatively can find further discussion and more North American fertiliser stocks here.
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.