Australian Market Segments to March 2020

The leaders of last month became the laggards of this month in a typical ‘Risk-off’ market rotation. In the space of one month the strongest segment in the Australian market has been the hardest hit, falling more than twice the amount that the strongest segment fell. Here we look at which segments of the Australian market have fared the best, or 'least worst', coming into March 2020.

Emerging Companies (XEC) have taken the greatest hit, down -15.28 over the month. This takes the total return over the last 12 months down to only +5%.

Mid-Caps and Small-Caps both fell about -10% for the month. Mid-Caps are now only up +1% for the last 12 months, while Small-Caps are now down -1% over the rolling 12 months,

This is typical ‘Risk-off’ and index selling. The risk-off aspect see the smaller companies fall harder, as investors speculate that their balance sheets might not see them through the tough times ahead. If the smaller companies run out of working capital, then they’d have to raise money (sell new shares) at very large discounts from the current share prices. That’s why investors sell now, to avoid being diluted by new shares being issued at larger discounts.

The index- selling comes in waves where investors take a broad-brush approach to exit the share market. The selling is indiscriminate and pushes new sell orders into the market, wave after wave. There’s a systematic way of selling that sees companies sold down proportionately to how much of the index that particular company makes up. This selling drags the market indices down across the board.

Relatively speaking, the large caps were the best performers, although having the blue-chips (Top Twenty) down -7.72% is far from what most would call ‘best performers’. Nonetheless, these companies fell the least for the month leading into March.

The chart below shows the aqua green highlighted line as the XEC’s performance over the last year against the other market segments including its quick return to common ground.