S&P/ASX 200 Monday – SYD & ASX retail shares in focus

The S&P/ASX 200 (ASX: XJO) looks set to start the week on negative footing, with ASX futures pointing to a weak open. Here’s what you need to know.

ASX 200 ekes out a gain, tech profit-taking continues

Global markets continued their negative trend on Friday, the ASX 200 falling 0.3%, but managing to finish the week up a solitary 5 points; outperforming most global markets.

It was a similar story in the US, with both the Nasdaq and S&P 500 dropping 1.1% on Friday, pushed lower by another ramping up of the technology and privacy war between China and the US.

The White House announced the banning of new downloads of both Tik Tok and the popular Tencent Holdings (HKG: 0700) owned We Chat application that is used for messaging and money transfers. The reasoning was simple; they are seeking to protect the privacy of American data. I’m interested to see if tech darling Afterpay Ltd’s (ASX: APT) US expansion is impacted given Tencent owns around 5% of the company.

Closer to home, Sydney Airport Holdings Pty Ltd (ASX: SYD) reported its monthly traffic volumes, down 96% on 2019 in August. The company remains highly leveraged and high risk, effectively relying on the success of Victoria’s lockdowns.

Looking beyond the headlines

Dividend season continues to send the market lower, with cash flowing out of businesses and into the hands of investors. Friday’s weakest was AMP Limited (ASX: AMP) down 8.2%, trading ex-dividend its first payment in over a year.

Having digested the employment data, the importance of looking beyond the headlines must be emphasised. As Alan Kohler put it over the weekend, there was actually a fall in the number of jobs, and an increase only in the number of people working for themselves. The data is therefore suggesting the employment surge has come from temporary workers, such as food delivery, outsourcing and the rest of the so-called ‘gig economy’.

This is clearly not sustainable and it is not a surprise that some are suggesting effective unemployment is closer to 13%. If true, the recent surge in retail spending is likely to be reversed in 2021, impacting the likes of Kogan.com Ltd (ASX: KGN) and JB Hi-Fi Limited (ASX: JBH).

Elsewhere, lithium stocks have staged a recovery despite a huge oversupply, Galaxy Resources Limited (ASX: GXY) jumping 7.2% higher on Friday ahead of Tesla Inc’s (NASDAQ: TSLA) Battery Day. 

Key takeaways from the week

As per usual, here are my three takeaways from the week:

Behavioural biases

It is clear that emotion is driving markets on a daily basis. Having been locked down for close to six months, our views naturally fluctuate between bullish and bearish at any given moment. To us, this reiterates the importance of having an objective and regular review process, quarterly being best practice, and seeking the views and inputs of other experts on a regular basis.

Dispersion

Markets continue to diverge with daily movements more reliant on company or sector specific news in general. Discussions with a number of global managers during the week reiterated the importance of having a flexible investment approach, avoiding the value vs. growth comparisons that plague our news media and focusing on the real companies into which we are investing (or avoiding).

Where is the pain?

It’s becoming increasingly clear that the COVID-19 lockdowns are hitting smaller rather than big businesses the hardest. Those with sufficient cash or access to capital from shareholders are able to cut costs, remove staff and await the end of restrictions. The result will see the strong become stronger, collecting market share, a powerful trend for investors; despite the clear negatives for the economy.

This article was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.

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Afterpay, Zip Co, Sezzle… is BNPL the opportunity of a lifetime? Or is the sector a ticking time bomb? Our analyst’s 7,500-word report, Our Ultimate BNPL Sector Report, takes a deep dive into the BNPL sector and shines a spotlight on each of the major players in this booming market. You can get the full report right now (for FREE) by clicking the button below.

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