Market volatility continues, as an ever-increasing list of factors are impacting on the global macro (and micro) environment. In addition to inflation, interest rates, the war in Ukraine and lockdowns in China are also impacting key transport logistics and supply / demand dynamics.

China is Australia’s largest trading partner, and a significant global power, so the lockdowns are impactful. For example:

  • Shanghai is the largest freight terminal in the world
  • China is the largest exporter in the world
  • China is the second largest importer in the world (US first)

Shanghai has been locked down for about five weeks, and Beijing followed recently. The impact of this is being felt in the demand for resources in particular. This has corresponded to a fall in most commodity prices and subsequently the companies that produce those commodities.

Should the recent challenges be transitory, the weakness may be a buying opportunity. This is the conundrum for investors.

Individual companies have experienced their own price action, which is largely hidden from an index calculation. The ASX is over 50% exposed to the resources and banking sectors, resulting in significant concentration at the index level. BHP alone is about 12% of the ASX-200 since the repatriation of the shares listed in London. If commodities do well, our market tends to do well (& visa-versa). Commodity prices are difficult to forecast, and the index concentration to this sector will result in large swings.

Our preference is a more diversified approach, in a group of quality businesses with reasonably forecastable earnings.

Scroll to Top