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Date : 28/07/2021

BNPL Shares Struggle On ASX Following Fragile Market Sentiment

Following two straight days of the ASX-200 setting record high, the market sentiment looks to have declined today. The biggest reason has been the slightly higher than expected inflation numbers. Australia’s CPI (consumer price index) rose 0.8% in June, compared to a previous forecast of 0.7% for the same period. The fickle sentiment surrounding inflation looks to have appeared once again. During the past few months, market sentiment has been easily swayed on the back of inflation fears, however, following a rough couple of trading days, market sentiment seems to be viewing the rise in inflation as transitory. As for this time, we shall just wait and see how it pans out during the rest of the week.

Why are the BNPL Shares struggling On ASX today?

The Tech sector was the worst performing sector today as inflation fears crept in. Why? When inflation creeps in, it increases the cost of capital, leading to squeezing of valuations. The BNPL sector was hit hard as APT shares and Z1P shares, the leaders in the BNPL space were hit and ended the day in the red. It’s also worth noting that Z1P shares are one the most shorted stocks on the ASX.

Along with inflation fears, the lockdowns in Sydney and NSW seem to be affecting market sentiment, especially the BNPL sector. Consumer spending during the lockdowns in 2020 was supported with the Jobkeeper program – leading to increased usage of BNPL technologies such as Afterpay and Zip. However, the sentiment around consumer spending is a lot more unclear this time around and it looks like the retailers and the BNPL shares will not be as buoyant as they previously were.

Both, Afterpay and Zip have not put a foot wrong as far as operations goes. But APT shares and Z1P shares have been the subject to high degrees of volatility during the period. The reason has been the unstable macroeconomic outlook for the sector as a whole. Institutional investors are also extremely divided when it comes to sentiment around APT shares and Z1P shares, which has not really helped the overall retail investor sentiment regarding the BNPL shares either.

However, both Zip and Afterpay’s largest markets are now in the USA, where consumer spending and sentiment continues to rise. Z1P and APT both are now truly global companies that are setting records when it comes to growth numbers. Z1P share price closed at $6.56 a share today, as shares declined 2.67%, and APT shares dipped to below $100 a share for the first time since early June as APT share price closed at $99 a share, declining 3.6% today.

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