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Australian shares have wiped out nearly all their gains for the past month, following a tech sell-off across Wall Street — though "meme stocks" like GameStop defied the trend with another massive surge overnight.
Key points:
- Despite today's losses, the ASX 200 has risen 1.3pc since the year began
- The Australian dollar hit a three-year high (80.07 US cents), before dropping sharply
- The Nasdaq suffered its worst day since October after the overnight tech sell-off
The benchmark ASX 200 index lost 160 points (or 2.4 per cent) to close at 6,673.
Earlier in the day, it fell by as much as 175 points, before recovering slightly. The last time the share market tanked this badly was September 4, when the ASX shed 187 points (or 3.1 per cent).
The broader All Ordinaries index dropped 165 points (-2.3pc) to 6,941.
All sectors were in the red, with industrials, consumer discretionary and healthcare being the worst performers. Almost every stock on the ASX 200 traded lower.
By 4:40pm (AEDT), markets across the Asia-Pacific also tumbled, like Hong Kong (-2.8pc), Shanghai (-2.1pc), Japan's Nikkei (-3.3pc), South Korea's KOSPI (-3.4pc).
However, New Zealand's NZX 50 was the only one to overcome its early losses and close 0.7 per cent higher.
Commodity prices slid even further today. Spot gold dipped (-0.6pc) to $US1,759.31 an ounce, while Brent crude oil futures sank (-1.3pc) to $US66 a barrel.
That was on top of their heavy losses overnight.
LoadingAfterpay and Kogan shares plunge
Kogan shares dropped (-10.4pc) despite the online retailer announcing its half-year profit surging (+164pc) to $23.6 million. It was driven by the company's revenue jumping (+89pc) to $414 million.
It also declared a record interim dividend of 16 cents per share (up from last year's 7.5 cents).
Shares in Afterpay fell (-11pc) on Friday, its first day back on the market after a one-day trading halt.
Yesterday, the buy now, pay later company reported its half-year sales more than doubled, but its loss widened to $76.5 million.
It also announced a $1.5 billion capital raising and said it was exploring a possible overseas stock market listing.
Some of that cash (about $373 million) will be used to buy an extra 35 per cent stake in its US business. That stake is currently owned by venture capital firm Matrix Partner
Some the worst performers on the ASX 200 were Orica (-18.1pc), Service Stream (-14.2pc), Afterpay (-11pc), PointsBet (-10.6pc), Kogan (-10.4pc) and Flight Centre (-6.6pc).
Commonwealth Bank, Westpac, NAB and ANZ dropped between 2 and 2.6 per cent.
Mining giants also experienced big losses, like BHP (-2.6pc), Rio Tinto (-1.3pc) and Fortescue Metals (-4.5p), along with utilities companies AGL Energy (-3.2pc) and Origin Energy (-3.6pc).
Other big-name companies like Coles (-4.3pc), BlueScope Steel (-4.3pc), Woodside Petroleum (-3.4pc), REA Group (-3.9pc) were also caught in the slump.
On the flip side, AMP (+7.5c) posted solid gains, along with gold stocks like Silver Lake Resources (+7pc), Perseus Mining (+4.5pc) and Gold Road Resources (+3pc). That was despite a massive fall in spot gold prices overnight.
AMP's second chance of a revival
AMP shares jumped after the company signed a non-binding joint venture (JV) agreement with US-based Ares Management, valued at $1.35 billion.
At this stage, Ares is planning to buy a major stake (60 per cent) in the private markets business of AMP Capital (the asset management division of the AMP Group).
Both parties have a 30-day exclusivity period, during which AMP is hoping will lead to an actual binding contract.
This comes weeks after Ares decided to abandon its plans to takeover the entire AMP company for $6.36 billion, which caused the Australian company's share price to tank.
Under this new deal, AMP will retain 40 per cent of AMP Capital's private markets business, worth $900 million, which deals in infrastructure and real estate investments.
The entire joint venture deal is worth $2.25 billion.
The embattled wealth manager has lost two-thirds in value and struggled to repair its reputation since the 2018 banking royal commission found AMP lied to regulators and engaged in serious misconduct (in particular, the "fee for no service" scandal).
Orica warns of sales hit due to China trade tensions
Orica's shares plunged after it said the recent Australia-China trade dispute would hurt its thermal coal sales, while flagging pandemic-related disruptions to mining activity in several regions.
China has unofficially banned Australian coal imports since October amid souring relations between the two countries after Canberra called for an international inquiry into the source of COVID-19.
"Trade tension between Australia and China is ongoing and is impacting demand in Orica's higher margin Australian thermal coal market," the company said.
Orica, the world's top supplier of commercial explosives, forecast demand for its products and services to be about 60,000 tonnes of ammonium nitrate lower in the first half of fiscal 2021 compared to a year earlier.
The Melbourne-based firm said the coronavirus pandemic was continuing to impact its activity in Colombia due to temporary and permanent mine closures for its major customers.
It added that disruptions in parts of Europe, Africa and Mexico were more prolonged than expected.
The company also revealed that its chief executive Alberto Calderon is stepping down after six years in the top job.
He will be replaced by Sanjeev Gandhi, who only joined the company in July (as head of Orica's "Australia Pacific Asia" division).
Orica also said that Mr Gandhi had previoulsy worked 26 years with German chemical company BASF SE across India, Germany Japan, Singapore and Hong Kong.
Aussie dollar volatility
The Australian dollar was quite volatile as it spiked to 80.07 US cents (its three-year high) overnight, before dropping as low as 78.24 US on Friday morning.
It last traded at 78.32 US cents on Friday afternoon, around 4.40pm.
"Falling US equity prices and lower oil prices weighed on the Australian dollar," said Commonwealth Bank currency strategist Kim Mundy wrote in a note.
"A fall in Australian‑US 10‑year government bond yield differentials because of higher US yields likely also contributed to the weaker Australian dollar."
"Nevertheless, our AUD/USD fair value equation suggests a test of 82 US cents is possible."
LoadingWhy was there a market sell-off?
Australian shares followed a weak lead from US markets, after its high-flying technology-related stocks were heavily sold off.
The Nasdaq ended its day much lower (-3.5pc) at 13,119, posting its worst day in four months.
The benchmark S&P 500 index fell (-2.5pc) to 3,829, while the Dow Jones lost 560 points (-1.8pc) to 31,402.
LoadingInvestors were spooked after the yield on America's benchmark bonds (the 10-year Treasury) jumped to a one-year high of 1.53 per cent.
The return on US bonds (which are regarded as safe investments) is now higher than the dividend yield of Wall Street's benchmark index, the S&P 500 (estimated to be 1.48 per cent).
It means shares (which are considered risky assets) have lost their advantage over the bond market.
This led to investors cashing out of their high-flying "growth" stocks due to concerns they are now starting to look quite overvalued.
"The concern is that we haven't been in an environment of persistently rising inflation expectations so it creates this new dynamic for investors," said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors in Newport Beach, California.
Optimism waning amid tech sell-off
Apple, Amazon, Microsoft, Alphabet (Google's parent company), Facebook and Netflix were down between 1.2 and 3.6 per cent.
Tesla plunged (-8.1pc) after a media report that the electric-car maker told workers it would temporarily halt some production at its car assembly plant in California.
Optimism about more US stimulus (expected to be about $US1.9 trillion) and a quicker pace of vaccinations at the beginning of the month had positioned the the Dow Jones for its biggest monthly gain since November.
However, the lack of significant new developments around the stimulus package and the winding down of the earnings season have caused uncertainty in the market.
"In the beginning of February, the stimulus news was the driving force but now that it has been priced in, there is nothing on the distant horizon for equity investors to be excited about and there is a concern that upside is limited," said Mike Zigmont, head of trading and research at Harvest Volatility Management.
GameStop surges again
GameStop shares, meanwhile, finished trading well below its intraday high, but still managed to jump (+18.6pc) to $US108.73.
The struggling video game retailer's stock doubled in value yesterday, and its volatility triggered a series of trading halts on the New York Stock Exchange.
Its shares hit $US160 at the open before being halted after several minutes of trading and fell to about $US129 before the second halt.
The rally lifted other "stonks" popular on sites such as Reddit's WallStreetBets, including headphone company Koss Corp (+16.8pc).
Analysts were puzzled by the new rally. Some ruled out an epic "short squeeze" like the one in January.
Last month, some hedge funds which bet against GameStop lost billions of dollars — as they were forced to cover their short positions when individual investors using Robinhood and other trading apps pushed the video game retailer's shares to a record high ($US483).
"The power of the 'three R's' [Robinhood, Retail, Reddit] are back in play," said Neil Campling, head of technology research at Mirabaud Securities.
Ankit Gheedia, head of equity and derivative strategy, Europe for BNP Paribas, said: "Short interest, though still significant, is now starting out from a different base than last time when it was more than 100 per cent."
Some said the rally may be partly fuelled by a fear of betting against GameStop.
'Really stupid' gambling mentality
The latest surge comes days after Reddit trader Keith Gill, who runs the YouTube channel Roaring Kitty, doubled down on GameStop and bought additional shares last week.
Mr Gill testified to Congress last week that he remains bullish on GameStop, with his words "I like the stock" gaining popularity, being quoted by hundreds of his online followers and featuring on financial-themed meme pages online.
Reddit discussion threads were buzzing again about GameStop on Thursday (local time), with members exhorting others to pile in as the rally gathers steam.
"Bought lots more #GME today, let's keep fighting !!," wrote Reddit user Fundssqueezzer.
GameStop shares skyrocketed by more than 1,600 per cent in January as retail investors, urged on by WallStreetBets, bought the stock as a way to punish hedge funds that had taken an outsized short bet against it.
The squeeze hurt Melvin Capital's Gabriel Plotkin, whose firm was left needing a $US2.75 billion lifeline supplied by hedge fund Citadel LLC's Kenneth Griffin and Point72 Asset Management's Steven Cohen.
The risky trading strategies employed by some traders on Reddit have drawn the ire of investing legends such as Charlie Munger, long time business partner of Warren Buffett.
Online brokerage Robinhood said in a tweet that the NYSE action would impact all brokerages, but that it had not paused trading on the shares.