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Coronavirus and the Australian Stock Market


Published 03-SEP-2020 11:26 A.M.


3 minute read

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The coronavirus pandemic has rocked almost every economy around the world, and Australia's is no exception.

Although Australia has done a relatively decent job containing the spread of the virus when compared to other countries, it hasn’t been without its issues.

Unemployment has shot up to over 11%, with experts estimating the unemployment rate will hover at around 9% by the year's end.

Yet, despite this disheartening news, government stimulus intervention saved over 700,000 jobs.

Looking at the Australian stock exchange (ASX), it took a major nosedive and fell by about 40% following the pandemic's initial chaos of March 2020.

Since then it has made a decent recovery. Looking at this week’s numbers, the S&P/ASX 200 index (XJO) soared 110 points on Wednesday to close at 6063 points, helping to offset three consecutive days of losses leading up to that point.

The ASX SPI200 index was up 42 points to 6093 points.

This news, coupled with generally positive trends around the globe, maybe a boon for Australians engaged in online stock trading.

Good news from Wall Street has rubbed off on the ASX. The S+P 500 has trended upwards, however, the recovery's longevity is unknown.

Protests in the US, an upcoming election, political bickering stifling the effectiveness of the next stimulus-package, and a vicious resurgence in coronavirus infections in America may severely dampen nascent recovery efforts.

While analysts are uncertain by how much and to what extent this bad news will harm the US-stock market, good news on Wall Street, particularly with the NASDAQ, seems to be having a positive effect on the ASX, which is a result of the high correlation between the ASX and American stock market.

Additionally, the US government has reached a $2 billion deal with pharmaceutical giants Pfizer and BioNTech to purchase 100 million doses of a Covid-19 vaccine, should the one that is currently in testing phase prove efficacious. Besides the events going on in America, other phenomena may influence the ASX's performance as well.

Australia is a country well-known for its mining industry. The mining industry accounts for over 6% of Australian GDP and is, to some degree, helped along by our interest in gold and the strength of the gold price. Two major publicly-traded mining companies, the $10BN capped Northern Star Resources (ASX:NST), and Evolution Mining (ASX: EVN) have both recently reached record high-stock prices.

ScandiVanadium (ASX: SVD) and AusQuest Limited (ASX:AQD) are two small caps to watch in the highly prolific Paterson Province of Western Australia.

In times of economic uncertainty, investors usually divert large portions of their portfolios into gold to hedge risk. Thus, this demand for gold, driven by uncertainty in the US market as well as escalating tension in the South China Sea, has hitherto served as a positive-price mechanism for Australian mining companies, and the ASX.

While investors and stock traders may see the above information as a sliver of good news, one major caveat looms.

Although it made a drastic recovery a few months ago, the price of oil has again fallen to just over $40 a barrel. Indeed, Australian oil and gas companies such as Oil Search Limited (ASX: OSL) and Santos (ASX:STO) have experienced a recent drop in their stock prices, highlighting poor investor sentiment.

Falling prices may indicate falling demand in oil, which could further impact the economy.

The precarious state of the global economy is worrisome.

While some Australian companies and sectors are profiting, the drop in oil prices could indicate further economic pain. Due to uncertainty in global markets, exacerbated by the health pandemic, those involved in online stock trading should continue to trade with caution.

General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

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The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

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