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How these 3 ASX financial shares have proved their doubters wrong

It’s becoming easier and easier to forget but, back in March, the S&P/ASX 200 Index (ASX: XJO) was in the throes of the fastest bear market on record. Between 20 February and 23 March, the ASX 200 fell over 35% – losing more than a third of its value in just 4 weeks. 

Since then, the ASX 200 has rallied over 20% – assuaging some of the nasty losses many ASX investors experienced. 

But some ASX financial shares have gone one better than the index by at least doubling in value since those March lows.

Afterpay Ltd (ASX: APT)

Afterpay shares have performed extremely well since the lows in March when investors sent this company back down to the bargain basement at ~$8 per share. Today, Afterpay has printed a fresh, all-time high and has just this week broken the $45 mark for the first time. That’s an increase of over 400% in just two months – now that’s a good size gain!

EML Payments Ltd (ASX: EML)

EML Payments is another payments company the ASX has decided it may have misjudged in March. Back then, EML plumbed depths of $1.20 per share. This week, however, EML shares were commanding almost $3.80 per share. That’s more than a 3-bagger in just two months. Got FOMO yet?

Credit Corp Group Limited (ASX: CCP)

Credit Corp is another financial company that the markets have clearly re-rated since March. Much like Afterpay, investors were initially very concerned over this company’s credit risk when the scale of the economic fallout from coronavirus became clear. 

But it’s obvious the market’s worst fears back then are no longer expected to eventuate. Since Credit Corp touched lows of ~$6 per share on 23 March, the stock has more than doubled and was trading above $15 for most of the week.

Notice anything in common yet?

Why are these ASX financial shares storming higher?

Well, in my view it’s all to do with credit risk. When it became obvious that our economy was destined for a nasty recession as a result of the coronavirus pandemic, any company that held large amounts of debt or credit risk was clearly not the first choice for investors. Recessions usually involve higher rates of loan default, which can quickly cripple any business, but especially those who don’t enjoy the scale and government backing of the big ASX banks.

What’s more, new-age financials like Afterpay and EML have never been tested in a recession, so clearly investors weren’t really feeling like taking a chance on these companies back in March. However, things have changed since then. For instance, Afterpay has reported its service remains more popular than ever, and that it isn’t facing the wave of defaults investors feared.

Foolish Takeaway

It’s ASX shares like these that once again show the benefits of taking a contrarian position ‘against the crowd’. It’s not always wise to bet against the market, but if you do it successfully, the results can be extremely lucrative.

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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Emerchants Limited. 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.