Australia’s economic outlook, buying the dip and the Afterpay crash

White whales and heady losses

Steven Cohen, renowned for running one of the most successful hedge funds in history, an exquisite art collection and popularising fleece vests in the financial world, has run into a spot of bother in recent times; with Bloomberg reporting that his:

‘Quantitative trading group [Cubist Systematic Strategies] lost about 22% this month, according to people with knowledge of its performance, as the accelerating coronavirus spread sent stocks tumbling.’

For reference, in 2019, Cohen’s main fund – Point72 Asset Management – gained approximately 16% , Bloomberg reported in January.

On very much the other side of the financial world, some media outlets are starting to report that Warren Buffet’s Berkshire Hathway has suffered heavy paper losses amidst the current market turmoil, with Gurufocus running a story titled:

‘Warren Buffett’s Portfolio Loses $80 Billion on Market Downturn.’

The Oracle’s top three holdings – Apple, Bank of America and Coca-Cola have indeed been battered amidst the recent coronavirus-led sell-down. Tech innovator Apple is down ~26% for the month, though still clings to its trillion dollar market cap; while Coke and financial stalwart Bank of America have declined ~29% and ~42%, respectively.

To make the best of a bad situation at least, according to Bloomberg the world’s richest have spent around US$1 billion buy during this ‘bargain of a lifetime situation.’ CCN also noted that Warren Buffett is ‘ready to Pounce on This Stock Market Massacre.’

Though at this point, amidst unprecedented stock market falls and the potential for entire economies to be put on ice, bargain seems a term one would want to apply cautiously; and ideally, retrospectively.

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FMG share price: the same rules apply

In local markets, trader’s dream Fortescue Metals Group (FMG) has continued to see its share price swing in an intriguing, though mostly positive fashion, closing out the week about 15% higher, at $10.35 per share. As a pure-play iron ore miner many market commentators found it interesting that during the back-half of 2020, FMG’s share price held up so well, given the weakened price of iron ore.

If FMG was prone to decoupling then, it’s certainly bucked the broader index now: Australian markets had another horrid week, with the ASX 200 benchmark tumbling 706 points or 12.8%; while the All Ords plummeted over 700 points.

This time around mind you, iron ore prices have remained elevated, hovering around the US$90 per tonne mark; with many now speculating that China is gearing up to launch a hefty stimulus package. On this front, the Financial Times recently wrote:

‘Fears of over-supply are being held in check by an expectation that Beijing will counter the viral outbreak with aggressive economic stimulus. If policymakers do go all out, which seems a fair bet based on China’s record, iron ore could hold up.'

Afterpay share price: later & now

Like the rest of the market, Afterpay’s share price started the week in a sorry state: at $21.50 per share, at that point, the tech darling had lost near 50% of its market value in about month.

As if to demonstrate the prickly nature of markets, Afterpay saw its share price halved again, dropping to a low of $9.57 per share by Thursday.

The markets look to have taken that as a sign the stock was way oversold: on Friday it quickly rebounded, soaring as much as 43%, before giving up some of those gains by the close, ending out the week at $12.44 per share, but still up 25.66% for the day.

Amidst this volatility Afterpay tried to reassure its investors, stressing the strength of its balance sheet and robust cash position, noting that the average age of its customers was 33 (a stat that’s been on the up), and that better still, the company has seen no 'material impact on our business activity and timing of instalment repayments or transaction losses to date.'

Of course, given that markets are forward facing, investors are likely less worried about the current state of things and more so about the future potential impacts entailed by the coronavirus crisis.

At the time of writing, total coronavirus cases stood at 274,171 across the globe.

Speculating on the impact of the coronavirus, Goldman Sachs warned that it expected spending on discretionary goods to fall between 10% and 40%. More broadly speaking, the investment bank posited that the Australian economy will contract 6% in 2020, representing the 'sharpest annual GDP contraction since the great depression of the 1920s.’

Elsewhere, equities, commodities and currencies had a wild week: Uber soared over 40% on Thursday; retailer Lovisa skyrocketed 64% on Friday; infrastructure player Cimic surged 51% on Friday as well; the Aussie Dollar sunk to a 17-year low during the week; WTI Crude crashed and then rallied; and aerospace giant Boeing yesterday hit US$95 per share.