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Choppy market waters ahead as ETFs see larger trade volume

Gemma Dale
30 September 2022

The choppy ride in markets continues unabated, with the ASX200 losing more than 9% over the last month, but gaining over 1.4% on Thursday.

The turnaround in sentiment was prompted by extraordinary action from the Bank of England; with the UK widely recognised as the developed economy most likely to enter a recession, the new Government’s stimulatory mini-budget – that included huge tax cuts for the wealthy – was met with derision by commentators and disdain by markets, which sold off the pound to below $US1.04. Suddenly came the possibility of parity with the US dollar, or worse, and large UK pension funds being unable to meet their liabilities were too much for the BOE, which launched a potentially unlimited – albeit temporary – bond-buying programme.

This prompted the International Monetary Fund to warn that governments should avoid expansionary fiscal policy while their central bankers are trying to fight inflation, and former Treasury Secretary Larry Summers, among others, to refer to the UK as an emerging market. Equities, of course, rallied hard across all markets, as investors’ hopes of the Fed put (in this case the BOE put) were reignited.

As the volatility continues, volumes remain subdued; even heavy down days are drawing only modest buying. The ‘buy the dip’ mentality that proved so successful in the Covid era has not delivered great returns in the last 12 months, particularly for those in the previously hot tech and buy now, pay later sectors.

Thursday’s ASX rally was a highlight for the week but lost a bit of steam toward the close. For investors who’ve borne days, weeks and in many cases months of losses in blue chip names, it gave a brief window in which to trim positions.

ASX200 over five days

Source: nabtrade

Some corporate news has driven price action during the week. Premier Investments (PMV) updated its full-year results on Thursday, noting a 47% increase in sales over the first seven weeks of FY23 compared to the previous year.

Given half the country was in lockdown during the same period 12 months ago, this comparison may not be fair, but the special dividend and on-market buyback announced with the results were cheered by the market, sending the share price up more than 14%. The share price has fallen nearly 20% over 12 months despite the bounce; ordinarily, nabtraders would be trimming this news, but this week were unmoved.

Premier Investments (PMV) shares over 12 months

Source: nabtrade

AGL (AGL) announced it would close its Loy Yang A power station 10 years ahead of schedule, a big win for the company’s activist shareholders, led by Atlassian co-CEO Mike Cannon-Brookes, whose Grok Ventures has taken on the AGL board over its emissions profile. In addition, AGL will spend $ 20 billion on building its renewables capability. Again, nabtraders were unmoved.

Fortescue Metals Group (FMG) remains highly traded by high-value traders, with Pilbara Minerals (PLS) also finding favour. These two stocks alone often account for the value of the next six or seven stocks combined. BHP (BHP) is also mixed in high volumes.

While the big four banks are now firmly in the Hold category, with limited turnover, Macquarie Group (MQG) has found buyers as it hovers around the $160 mark. Nab (NAB), whose share price has been relatively range bound for some time, barely scraped into the top 20 trades, as a modest sell, while CBA, trading in an even tighter range, has also been trimmed.

Nab (NAB) shares over 12 months

Source: nabtrade

Exchange traded funds (ETF) have replaced many big names in the most traded list. Vanguard’s flagship Australian shares ETF, VAS, is a consistent buy, more popular on red days than green. BBOZ, the strong bear hedge fund, has a small number of proponents, and LNAS, the long Nasdaq fund from ETF Securities has also found some traders. Given the extent to which leveraged products like these can dramatically affect portfolio outcomes, they tend to be very actively traded.

On international markets, ETFs continue to offer exposure to niche opportunities and sectors. The Invesco Solar ETF (TAN.US) was a buy, along with Vanguard’s Russell 1000 ETF ()VONG.US). Investors remain relatively cautious on international markets; the days of hundreds of buys in Tesla each day are over.

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