The WiseTech Global Ltd (ASX: WTC), Afterpay Touch Group Ltd (ASX: APT) and Appen Ltd (ASX: APX) share prices have all plummeted more than 15% lower since the start of August – and their other WAAAX compatriots haven’t fared much better. So, is it time to sell, or buy up big?
What is WAAAX?
WAAAX is Australia’s answer to the FAANG (Facebook, Alphabet, Amazon, Netflix, Google) stocks in the United States (US), and consists of WiseTech, Afterpay, Appen, Altium Ltd (ASX: ALU) and Xero Ltd (ASX: XRO).
While investors in the WAAAX stocks have enjoyed incredible share price gains in the last couple of years, all 5 have been hammered lower as Aussie tech and mining stocks have led the S&P/ASX 200 (INDEXASX: XJO) losses in recent days.
Why have the WAAAX share prices plummeted in August?
Rising tension between the US and China have hurt global and domestic equity markets as the tit-for-tat trade war continues between the world’s biggest economic players.
US and Australian markets have enjoyed strong gains in the first half of 2019, with the ASX 200 posting its best 6-month start to the year since 1991 amid record-low interest rates, a rebounding housing market and solid economic growth forecasts.
However, US President Donald Trump’s decision to place 10% tariffs on a further $300 billion worth of Chinese goods spooked markets on Friday, and this risk-off sentiment has been carried through to this week.
In addition, China’s decision to allow its offshore yuan currency to devalue below 7 yuan per US$1 caused panic in the markets on Monday as the ASX 200 index sank 1.9% lower, followed by its 2.44% loss in yesterday’s trade.
Aussie tech and mining stocks have been the worst affected, with ongoing tensions inevitably bad for trade and economic efficiency, while China’s currency devaluation should boost its own exports and threaten revenues for the WAAAX companies.
Is it time to buy, hold or sell?
I personally believe that many of the share prices of the WAAAX stocks are overvalued, with the strong start to the year pushing price-to-earnings (P/E) ratios to all-time highs and potentially overvaluing the likes of Afterpay and Appen.
While there’s no doubt these stocks are leaders in their sectors and have huge upside potential, my view is that potential regulatory risks, threat of competition and general overvaluation make me wary of buying in at the moment.
However, I don’t think its panic stations for investors just yet and if I had some skin in the game I’d be holding on in the hopes of a bumper full-year result to kickstart the WAAAX share prices in August.
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Kenneth Hall has no position in any of the stocks mentioned. 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, Appen Ltd, and Xero. 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.