Rising trade tensions between the US and China have again threatened to throw global markets into chaos. US markets crashed yesterday with the tech-heavy NASDAQ index leading the charge, down 3.5%. After US President Donald Trump threatened to apply even more tariffs on Chinese imports, China allowed its yuan to depreciate to its lowest value against the greenback for over a decade. This is an attempt by China to combat the effects of the US tariffs by making its goods cheaper for foreign buyers.
None of this spells good news for Australian technology darlings like Afterpay Touch Group Ltd (ASX: APT), Altium Limited (ASX: ALU), Appen Ltd (ASX: APX) or WiseTech Global Ltd (ASX: WTC). They all led the market lower yesterday, with Appen the worst performer, shaving more than 10% off its market cap on Monday alone.
Don’t expect any better news any time soon
When volatility hits the market, it’s generally the technology and other growth stocks that are the biggest losers. As a general rule, valuations of these growth stocks are heavily dependent on market consensus views around their future earnings potential. And greater uncertainty around the future state of the economy – say the type of uncertainty created by the possibility of an ongoing trade war that could throw the world into recession, for example – hurts the valuations of growth stocks far more than more mature blue chips.
But it’s not all doom and gloom
While those with weak stomachs (and a lot of tech stocks) may not want to check their share portfolios over the next few days, downturns like this can throw up some interesting buying opportunities.
Take the aforementioned tech darlings. Last time the ASX experienced a serious bout of volatility, at the back end of 2018, all of these tech stocks suffered heavy losses. Appen and Afterpay both hit 52-week lows in October and November of last year, but since then have surged towards all-time highs. Appen actually more than tripled in price over the period from October to July.
The tumultuous, freewheeling state of modern global politics – taking its lead from the frenetic nature of Trump’s America and an uncertain Europe – is making investors jumpy and contributing to greater market volatility.
At times like these, it’s important to remain optimistic and hold your nerve. Market movements happen in cycles: the regular ebbs and flows of corrections and recoveries. And while the next few days or weeks may feel particularly painful, there are often some silver linings if you look hard enough. The market often rewards contrarians, and situations such as these offer the opportunity to use dollar-cost averaging strategies to your benefit.
The important thing is to stay calm, don’t panic, and continue to focus on the longer-term. And it might also be a good idea to delete that app you use to monitor your portfolio – at least for the next few days.
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Rhys Brock owns shares of AFTERPAY T FPO, Altium and WiseTech Global. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of WiseTech Global. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, and Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.