ASX 200 today – the NASDAQ effect becomes contagious

The S&P/ASX 200 (INDEXASX: XJO) is expected to open higher on Monday according to the Sydney Futures Exchange. Here’s what you need to know.

Stock market recap

The ASX 200 surrendered early gains to finish Friday down 0.6%, pulling the market down 2.3% for the week. Real estate, -5.4%, and industrials, -4.6%, were among the hardest hit as Victoria’s spike in COVID-19 cases shut the second-largest state down for another six weeks. Qantas Limited (ASX: QAN) led the falls, dropping 8.0%.

Despite offering a weaker leader to the ASX, both the S&P 500 and Nasdaq recorded positive results on Friday, driven 1.1% and 0.8% higher as the recovery in the banking sector continued. Netflix Inc. (NASDAQ: NFLX) and Tesla Inc.(NASDAQ: TSLA) continued recent stellar runs, improving 8.8% and 10.1% on Friday alone.

European markets were buoyed by better than expected economic data, with Italian and French industrial production increasing 42% and 20% respectively compared to expectations of just 23% and 15%. The Euro Stoxx bounced 1.1% on the back of the better than expected news, with brewers Carlsberg (CPH: CARL-B), 6.4%, and Anheuser Busch InBev (EBR: ABI) benefitting from a quicker than forecast recovery in Asian demand. In my view, European markets offer an interesting risk-reward opportunity as the region finally comes together on monetary and fiscal stimulus.

Entering wonderland

Walt Disney Co (NYSE: DIS) rallied 2.2% after announcing the reopening of two Florida amusement parks, along with various other global facilities. This comes at the same time that the National Basketball Association is preparing to restart its season in the Florida parks ‘bubble’ environment. I remain confident in Disney’s long-term outlook via its combination of value and growth opportunities, including its cruise lines and ESPN sports channels.

The Nasdaq effect mentioned last week has become contagious, with small business accounting platform Xero Limited (ASX: XRO) hitting an all-time high of over $93 and Afterpay Ltd (ASX: APT) competitor Zip Co Ltd (ASX: Z1P) improving more than 8% to $7.24, a high of its own. In my view, these valuations are becoming dangerous and difficult to fathom. But as usual, are being driven by the sheer lack of real growth companies available on the ASX and a continued unwillingness for many self-directed investors to allocate capital offshore.

Meanwhile, the incredible eight-day rally in Chinese sharemarkets came to an end with a return of 17%, after a number of state-owned pension funds announced the broad sell down of large shareholdings that had benefitted heavily from the rally.

Valuations in focus

Valuations were a key topic of discussion this week, with many experts questioning the lofty price of technology companies. Of more interest to us has been the lack of attention paid to residential and commercial property valuations, with little change some three months on from the COVID-19 crash.

Despite listed real estate companies like Unibail-Rodamco-Westfield (ASX: URW) and Scentre Group (ASX: SCG) trading at 50-60% below their 2020 highs, the valuation of the underlying assets of these companies and many of their competitors have barely moved. In fact, it was reported during the week that several union-backed industry funds have actually increased the valuation of their direct property assets. This seems hopeful given what we are seeing in our CBDs and recent reports that some 2 in 3 apartments in Melbourne were being sold at a loss in the March quarter.

Finally, the UK Government provided a glimpse into the future of fiscal policy, announcing a Value Added Tax (like our GST) reduction for hospitality-focused business, something suffering Victorian and Australian businesses are no doubt crying out for.

This report 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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