It has been six weeks since the ASX suffered back-to-back losses of this magnitude and it was also the market’s first weekly loss since April. Despite the downbeat sessions, market watchers are still confident about the relative health of the bourse.
OANDA’s senior market analyst for Asia Pacific, Jeffrey Halley, said that it was only natural for investors to pause for breath after the index completed a remarkable 35 per cent march from a bear to bull market within three months.
“Once again, I will emphasise that given the scale of the rally from the mid-March lows, global stock markets have a lot of room to correct lower without changing the underlying premise; central bank money pumping up asset valuations,” Mr Halley said.
Meanwhile, TMS Capital portfolio manager Ben Clark said the correction was long overdue and perhaps a necessary circuit breaker for heightened volatility.
“A period of consolidation would actually be a healthy thing for the market.”
“To me it had somewhat disconnected from the challenges that we’re facing and the outlook … it’s a good thing to have a bit of a regular correction on the way up.”
The CBOE volatility index is at its highest since mid-April, having spiked nearly 50 per cent on Thursday to 60 points. The index eased to a near three-month low 35.2 points last week after peaking at 83 amid the COVID-19 rout of the market in mid-March.
Mr Clark said a breather would help smooth this out.
“I think the market was way overdue for a breather … you don’t want to see 7 per cent to 8 per cent swings from day to day,” he said.
The local banks again suffered badly during a second straight session of red ink.
Westpac led losses for the big four, down 3.3 per cent to $17.89 after the financial crimes watchdog announced it will conduct a deeper probe into the bank over its failure to properly vet international transactions potentially linked to child exploitation.
The banks lost 3.8 per cent for the week, halting a run of gains that included rises of 11.1 per cent and 7.4 per cent over the preceding fortnight.
Energy stocks also plunged on Friday as oil prices fell on fears over global demand. The sector dipped 4 per cent.
The big miners were also in the doldrums after iron ore softened slightly. BHP lost 2.1 per cent to $35.99, Rio Tinto fell 1.1 per cent to $97.81, and Fortescue Metals dropped 0.5 per cent to $14.81.
CSL shed 0.18 per cent to $284.32 to keep the health care sector flat.
Tech stocks were down 1.7 per cent for the day and 2.6 per cent for the week. Its US counterpart the Nasdaq had been tearing into new highs before hitting a wall and losing 5 per cent on Thursday.
Supermarket Coles and gold miner Newcrest mining were among the rare blue-chips in the ASX winner’s circle, up 0.17 per cent and 0.51 per cent respectively.
Mr Clark said the prospect of a second wave of COVID-19 cases in the US was a concerning health hurdle but not one that would scuttle the current liquidity-fuelled rise of global equities.
“We are seeing worrying data about what is happening in America with coronavirus … but they will not stop the reopening of their economy,” he said.
Markets reporter for the SMH and The Age