Merry Christmas, Foolish readers, I hope you enjoyed your holiday break.
The S&P/ASX 200 (INDEXASX: XJO) is certainly feeling the holiday cheer, rising 0.7% to 5,242 points. This is down 4.2% from where we started the year.
A number of companies considerably underperformed the index today, however, and here's why:
Beach Energy Ltd (ASX: BPT) shares fell 7.5% to $0.49 after the value of crude oil lost another 3% over the weekend to trade at US$36.70 a barrel. While shareholders have been punished, the number of investors looking to speculate on a rebound in decade-low oil prices is growing, and Beach alongside several other companies like Santos Ltd (ASX: STO) can expect to draw its share of interest.
However, as I wrote in this article, investors must be cautious to compare the scale of the risk-reward trade off (ie, the size of the potential losses/gains) with the likelihood of making a gain. To my mind, a rebound is far from certain in the near term, meaning there is too much uncertainty for oil stocks to make an attractive speculative purchase right now.
BHP Billiton Limited (ASX: BHP) shares lost 1.6% to $18.05 today, likely also as a result of falling oil prices since BHP owns a significant number of oil and gas assets. With both iron ore and oil now trading hands for under US$40 a barrel, it looks as though BHP shareholders can expect much lower profits and dividends in the current financial year.
While today's fall is modest, I consider there to be a fair chance that shares in BHP could fall further over the next 12 months. In particular, there is a big question mark over global demand for steel, which will have an impact on iron ore and coal markets.
Trustee for AMP Capital China Grwth Fund (ASX: AGF) – fell a hefty 18.5% to $1.18 today on no news, although its benchmark index fell 2.5% in the most recent day's trade. AMP's China Growth fund has been bedevilled by a share price that continuously trades substantially below its Net Asset Value – estimated to be around $1.72 per share as of December 22.
Investor perceptions of the risks associated with the Chinese stock market could be partly to blame, although management recently conducted a review into the undervaluation and investors will have to see if it makes a difference.
eCargo Holdings Ltd (ASX: ECG) shares lost 17% today to $0.36 after a bumpy few days following on from its announcement that it had won a contract with Woolworths Limited (ASX: WOW) to operate the latter's online store on Tmall, China's largest online marketplace. Shares in eCargo jumped from around 10 cents to as high as $0.44, before again losing some of their lustre today as buying enthusiasm fades. The contract announcement omitted key financial details, making it hard to evaluate just how much of a winner eCargo is likely to be from the arrangement.
