After another poor start to the week for the S&P/ASX 200 (INDEXASX: XJO), a number of shares rebounded strongly yesterday afternoon.
Leading the pack was logistics company WiseTech Global Ltd (ASX:WTC), which closed the day up almost 13%. But healthcare company Polynovo Ltd (ASX:PNV) and tech stock Appen Ltd (ASX:APX) also both ended firmly in the green, each surging over 7% higher.
While it's pleasing to see these growth companies all post strong gains, investors should still approach the news with caution. With billions wiped off the ASX in recent days, we would expect to start to see some buoyancy in share prices as opportunistic investors snap up growth companies at bargain prices. However, I suspect volatility will be the new normal over the next few months as the market tries to price in the uncertain effects of the global coronavirus outbreak.
With so much news hitting the market every day concerning the global spread of the virus and the effect it is having on far flung economies, it is incredibly difficult to quantify the real economic impact the disease will have. And as we have seen over the last week or so, the market is extremely prone to bouts of panic.
Why are WiseTech, Polynovo and Appen shares climbing?
None of these companies released any substantial price-sensitive announcements to the market yesterday. However, all 3 companies did disclose reasonably significant investments in their shares recently. Polynovo and Appen disclosed that their directors had increased their holdings, while growth investment manager Hyperion Asset Management Limited snapped up just over 16 million shares in WiseTech.
These sorts of large trades will drive up the share price on the day they are executed. But they also send positive signals to the wider market. For Polynovo and Appen, it tells shareholders that the companies' directors – who are necessarily privy to a raft of information on the health of the underlying companies that is not accessible to everyday investors – feel that the companies' shares are undervalued. In times of crisis, it also aligns their interests more closely with that of other shareholders, which is an important show of solidarity.
For WiseTech, an investment of the magnitude of Hyperion's sends a similar signal to the market. A large fund manager, with a growth objective, has determined that WiseTech has now entered bargain territory and has pulled the trigger on a significant trade. This could reassure many investors that the WiseTech share price has reached a floor.
Foolish takeaway
If you are a shareholder in any of these companies, it was no doubt a pretty big relief to finally see at least a portion of your portfolio end the day in the green. After the week we've had on the ASX it's good to see some of the popular market darlings post decent gains after the heavy losses they've endured.
But let's also not get out ahead of our skis here either. The next few months are going to continue to be rocky as markets try to assess the impact the coronavirus will have on global economies.
The best thing to do is simply not panic and try to ride out the waves in the market. In times such as these, the worst thing you can do is realise your losses. It's best to always take a long-term view, and try to maintain a stoic attitude towards both good news and bad.
