Why Australian Vaccine News Will Be Met with a Shrug from the ASX

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It’s a strange one, as I write this, ASX 200 futures are pointing to a down day for the index.

This, as promising news emerges from the University of Queensland’s (UQ) COVID-19 vaccine project.

Here’s what you should know about the Australian vaccine:

  • Early data suggests ‘absolutely no safety concerns
  • The vaccine made neutralising antibodies and created a strong T-cell response
  • Data released to international standard
  • Allows for benchmarking of other vaccine candidates

Keith Chappell, one of the leaders of UQ vaccine project, is quoted in the Australian Financial Review as saying:

All the results today show that it’s safe and likely to provide protection against both the virus infection and the symptoms of disease.

So, what does the Australian market think of this development with a vaccine?

Not much, doesn’t matter, and let’s see the latest earnings numbers.

What’s going on here?

The AI ‘mega-trend’ – four ways you could profit. Learn More. 

US market favours the tech giants on positive vaccine news days

The US indices like the S&P 500 [SPX] and the NASDAQ Composite [IXIC] are at all-time highs and previously pushed higher on any shred of positive vaccine news.

Often (in the US at least) on the day of positive news like this, investors continue to pile into the tech giants.

This includes Facebook Inc [NASDAQ:FB], Amazon Inc [NASDAQ:AMZN], Apple Inc [NASDAQ:APPL], Microsoft Corporation [NASDAQ:MSFT], and Netflix Inc [NASDAQ:NFLX].

The big winner? Tesla Inc [NASDAQ:TSLA], with a mammoth 500% rise from the March market lows.

But as the ASX is set to shrug at the good news, here’s a look at what the ASX 200 [XJO] did over the last 10 weeks:

Port Phillip Publishing

Source: tradingview.com

[Click to open in a new window]

As you can see in the above chart, since 27 May the sideways trading took place in a range of less than 9%.

This shows up in a narrowing of the 20- and 50-day moving averages.

Now you may be thinking, a big move down may be on the cards.

And that your dreams of BetaShares Australian Equities Strong Bear Hedge Fund [ASX:BBOZ] riches may come true.

I’m not convinced.

Australian market has fewer defensive options

Like a good joke, the market is all about expectations, and the sideways trading from the March market lows was likely anticipating a mixed bag of earnings.

Results during this earnings season reflect just that.

Some companies are doing well, others are flailing.

And Australia’s tech sector is far less developed than the US’ so there are less places for capital to accumulate as investors go defensive.

I think the US tech giants are now a defensive play as opposed to a growth play.

They are at the tail end of a mature megatrend and with sizeable cash reserves, and a captive audience like the supermarkets, they tend to attract money regardless of their earnings multiple.

On the ASX, some of the major winners from the market lows are companies like Coles Group Ltd [ASX:COL], Afterpay Ltd [ASX:APT], and Xero Ltd [ASX:XRO].

So, there are similarities between the US markets and the ASX in terms of the favoured plays during the pandemic.

It’s just that we have less options in Australia when it comes to supposedly ‘safe’ companies.

The thing to remember here, is that with less options, the capital is increasingly flowing towards small-caps.

Because it must go somewhere.

Keep dreaming BBOZers, small-caps are where it’s at

In Australia this shows up as the S&P/ASX Small Ordinaries [XSO] catching up to the ASX 200 [XJO].

As someone who spends all day delving into the small-cap world, I can assure you there are some big moves afoot in some of these companies.

It’s part of why our Exponential Stock Investor service has had recent success.

Of course, the highly volatile nature of small-caps means they are potentially riskier, but you should be prepared to pounce on whatever the market throws up.

The shift to value investing over growth investing is not showing up in the charts just yet.

So, I expect the ASX to continue to move sideways for a reasonable period as the earnings results continue to flow.

I also don’t expect the next major move for the ASX 200 to be a plunge into the abyss either.

If anything, I expect it may be dragged slightly further upwards should US stimulus get over the line combined with a successful lockdown in Melbourne.

For now, keep dreaming BBOZers.


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Lachlann Tierney,
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PS: Four Well-Positioned Small-Cap Stocks — These innovative Aussie companies are well placed to capitalise on post-lockdown megatrends. Click here to learn more.

About Lachlann Tierney

Lachlann Tierney is an Analyst for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest…

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