Did you know that the ASX had fewer corrections compared to the US and European Markets?
In fact, during 2022, the ASX performed better than S&P 500 and Nasdaq correcting by 8%, whilst S&P 500 and Nasdaq have lost 18% and 26.5%, respectively. Painful I know.
The global economy remains uncertain with Ukraine’s ongoing war and the pandemic. This naturally forges fear amongst investors, thus affecting logical financial decisions.
The fear is palpable creating confusion so understanding the facts and being data-driven is key.
Join us as our researchers dissect the facts and assess why the ASX is not doomed.
ASX’s Sectors Can Withstand the Rise in Inflation and Interest Rates
The top two sectors in the ASX are Mining & Resources and Financials – not tech. These industries have performed way better than high growth stocks whose valuations are projected from expected future earnings. The rising inflation and interest rates have placed these high growth stocks valuations under intense pressure and affected the overall market performance.
Remember how the tech sector experienced a three-day wipe-out, pushing the Nasdaq towards a bear market?
ASX Will Benefit from China’s Projected Fiscal Spending
China is currently in lockdown, which has impacted commodity imports. To improve the economy and increase the demand for consumer goods, Xi who is chasing an unprecedented third term is expected to unleash a fiscal package similar to what was done in the 2008 financial crisis. A fiscal spending was also repeated on a smaller scale in 2016 to revive the property market.
Furthermore, Xi has called for an ‘all-out’ campaign to increase infrastructure, particularly in the transport and energy sectors. In fact, construction of ports and airports should be expected in the coming years. Needless to say, this is great news for Australia’s currency and overall economy. As you would know, the Australian dollar weakened past $0.70, the lowest in nearly two years.
ASX 200’s Forward P/E is Below Long-Term Historical Average
Looking at the market’s overall value, we have recognised that ASX has far fewer risks compared to S&P 500 and Nasdaq.
Recent reports show that the S&P 500’s Forward P/E is 18x from 23x and Nasdaq’s has a Forward P/E of 24x from 35x. On the other hand, the ASX’s 200 Forward P/E is just 15x and lower than the historical average. This reversion to the mean suggests that we are close to the bottom. Buyers are now more eager to enter positions expecting earnings to increase and quality stocks have started to look attractive for both medium and long term investors.
Whilst volatility is inevitable, we have a positive outlook on ASX and the Australian economy in the second half of 2022.
Pro Tip: In the meantime, we urge you to stay away from sectors that are interest-rate sensitive, including technology and real estate. You should know that resources, consumer staples and healthcare are the sectors that can weather the storm.