Market Strategist
Summary: The rotation out of tech and into commodities has been amplified due to the Russian Ukraine crisis with Russia attacking the region. The Nasdaq is now down 19% from November, while the Aussie tech index is down much further, down 37% from its high. But we can see investors still pouring into commodities, which has taken the S&P Metal and Mining ETF up 20%. While in Australia, the ASX Energy stocks are up 14% and ASX Mining stocks are up 17%. This is all ahead of a potential commodity super cycle. We cover what you need to consider, plus why look at oil, iron ore and the NZ dollar.
Co-written by Market Strategists Jessica Amir in Australia and Redmond Wong in Hong Kong.
-Updated 5.30pm Sydney Time-
What’s happening in markets?
What we have been speaking about since November last year; has now been amplified due to the Russian Ukraine crisis, with Russia now launching an attack. Money been coming out of tech and high valuation stocks, since November 2021 and been pouring into commodities.
Last night in the United States (US), the Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) slid 2.6% and 1.8% on their Wednesday.And today on Thursday in the US, the futures are suggesting another dark day is ahead, with a fall of 2.3% and 1.9% respectively expected. It’s vital to know while the Nasdaq is down is now 19% from its November 2021 high, money is storming into commodities, with flows into metal and mining stocks at the highest levels in 10 years. For example, the S&P Metals and Mining ETF (XME) has rallied up 20% from November 2021 (while the Nasdaq lost 19% over the same amount of time).
In Australia, the ASX200 (ASXSP200.I) fell 3% on Thursday (it's the biggest fall in 17 months), and is now down 8% from the August 2021 high. It’s also important to know, investors are aggressively moving out of tech and backing commodity stocks. We can see this as the ASX’s tech sector is down 37% from the August high, while Australia’s mining stocks are up 17% in this time, and Australia’s energy stocks are also up 14% in that time. Meaning… investors are moving out of tech and going into energy and mining stocks.
On the ASX; note the two biggest companies are commodity kings, who are likely to benefit from the new commodity super cycle (prolonged growth). This should help the ASX outperform the rest of the world. BHP (BHP) and Rio Tinto (RIO) listed on the ASX are the two biggest stocks in Australia. Fortescue Metals (FMG) is the 10th biggest. They are expected to pay dividend yields of 10%, 8%, and 15% respectively. Meaning you could benefit from share price growth and dividends. So consider longer term positions for your portfolio perhaps.
Other stocks in the top ten ASX include lending and banking companies, Commonwealth Bank (CBA), National Australia Bank (NAB), Westpac (WBC) and Macquarie (MQG), who are poised to benefit from the other new cycle about to start, with interest rates rising. Meantime, CSL (CSL) is the world’s biggest blood therapy company and is also in the top 10 biggest stocks. And so too is ASX newcomer, tech stock, Block (SQ2), who makes 50% of its revenue from bitcoin. I think in the top 10, Block is the only that could see further significant pressure as interest rates rise. A part from that, the rest of the top 10 are deemed to be capital stable with strong balance sheets.
In Asia today, Hong Kong’s Hang Seng (HSI.I) and China’s benchmark index, China A shares (000300.I) fell 3.4% and 2.5%.It was all about risk-off, following Russian’s attacks on Ukraine across the country. Hang Sang Index broke below 23,000 and Hang Seng Tech Index (HSTECH.I) was down 4.3%. Large tech names fell over 5% across the board. Alibaba (09988) fell almost 7% to new low. The Company is reporting results today. Auto and Chinese property names declined in excess of 6%. Energy stocks traded in Hong Kong were steady to modestly higher. A-share oil, oil services and gold mining stocks surged more than 4%. CSI300 fell 1.3% by mid-day and was down 2.7% at the time of writing.
In Singapore, the Straits Times Index (STI) fell 3.1%. In corporate news, yesterday, OCBC (OCBC) reported 4Q21 results below market expectations due to higher provisions, operating expensing and trading losses. Its shares stumbled and have continued to fall today.
What to consider?
Trading ideas
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