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Market wrap: ASX takes a hit as coronavirus fears take over

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The one thing I know with absolute certainty is that the mood of the market overrides rationality and fundamental value. This certainly rings true right now, as many companies have been oversold based on emotion rather than logic or fundamental value.

The reason why I say this is because many companies have not changed their earnings forecast, which means they do not foresee any issues arising from the coronavirus. Given this, I see no reason to sell, as many of these companies will bounce back in the not too distant future.

While the Australian market has taken a hit this week, this is due predominantly to the significant amount of negative news around the coronavirus. In other words, the big end of town is essentially manufacturing these falls, as they benefit the most from the volatility.

market wrap coronavirus fears
The ASX 200 has fallen more than 10% this week as the coronavirus spreads around the world. Brazil yesterday confirmed its first case of coronavirus. Photo: Victor Moriyama/Getty Images

We need to remember that the big fund managers, conduct the majority of buying and selling in our market and they know that individuals overreact to market news, so they use these opportunities to their benefit.

While the coronavirus is a concern for world health, what we are experiencing in the market right now is a very short-term emotional reaction to the news, and in the not too distant future, the coronavirus will be a distant memory.

You need to understand that the mood of the market will dictate direction and while the short-term mood is bearish, the medium to longer-term mood is still more bullish and the medium term direction is up. Therefore, my recommendation is to ride out the short-term waves right now.

Best and worst performing sectors

Given the market has been down, all of the sectors fell. Utilities was the best performing sector down just under 6% so far this week, while Healthcare, Materials and Financials were down just more than 6%.

Energy was hit the hardest this week down more than 10% so far with Information Technology down just under 10% and Consumer Discretionary just under 9%.

Looking at the top 100 stocks, the best performers include Northern Star Resources, which is up more than 2% for the week so far. A2 Milk is also up almost 1% for the week with Cleanaway just staying out of negative territory.

The worst performers include Reliance Worldwide down 26% followed by Link Administration down 22% and Magellan Financial down more than 17%.

What's next for the Australian market

It is safe to say that the All Ordinaries Index has achieved the high I was waiting for and is now moving into the low.

It is normal for the market to fall 8 to 12% when moving into a low and since 20 February, which was when the all-time high occurred, the All Ordinaries Index has fallen around 8%. Given this, we are now entering into the target zone for the low to occur.

If the market falls to 15% then the bottom target is around 6200 points. If the market does continue to fall, the good news is that I believe it will be short-lived.

Now is not the time to panic but rather sit on your hands and wait for the dust to settle.

We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.

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Dale Gillham is chief analyst for Wealth Within (AFSL 226347). He has an Advanced Diploma and Diploma of Share Trading and Investment and more than 25 years' experience in the financial services industry.
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