ASX marching higher despite COVID-19: Where should you invest?

While some ASX shares are suffering from the COVID-19-related shutdowns, others are rocketing. Where should you invest?

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If you ignored all the other news and focused solely on the Australian share market's performance since its 23 March low, you'd have no idea the nation was in the grips of a historic pandemic. No clue that a quarter of Australians are largely confined to their homes, or that all non-essential businesses in Victoria are shuttered.

Though slipping today — down by 0.66% at the time of writing — the All Ordinaries Index (ASX: XAO) is up 35% since 23 March.

Australia's largest 200 companies by market cap have also come roaring back. Despite a somewhat weaker performance by the big four banks, the S&P/ASX 200 Index (ASX: XJO) is up 32% in that same time.

What's next for ASX shares?

Predicting the daily, weekly or even monthly market moves is mug's game in the best of times. In the age of COVID-19, it's an even bigger gamble.

But as a long-term investor you can, and should, look beyond these temporary moves. Doing so will save you a lot of stress.

You should also look beyond the broader indexes' performance to understand which sectors and specific stocks are struggling, and which are doing the heavy lifting.

I'll get to some of those specifics shortly. But first, a look at some of the tailwinds helping to support global share markets during the pandemic.

A wall of easy money

As much as markets hate uncertainty, they thrive on easy money. And never in history have the money taps flowed so freely in major economies across the globe.

In Europe, EU ministers hammered out a fresh 750 billion-euro (AU$1.2 trillion) bailout package at the end of July. And the European Central Bank's base interest rate remains at 0.00%.

The United States (US) Congress is still engaged in last minute negotiations on the US's next mammoth stimulus package. The Republican's Help, Economic Assistance, Liability Protection and Schools (HEALS) Act will pump an additional US$1 trillion (AU$1.4 trillion) into the economy…and share markets. The Democrat's stimulus package would deliver a whopping US$3 trillion.

Interest rates in the US also remain at all-time lows, with the Federal Reserve maintaining a range of 0.00–0.25%. That's unlikely to change anytime soon. Nor is the Fed's quantitative easing (QE). As reported by the Australian Financial Review (AFR):

Fed policymakers repeated a pledge to use their "full range of tools" to support the economy and keep interest rates near zero for as long as it takes to recover from the fallout from the epidemic, saying the economic path will depend significantly on the course of the virus.

Here in Oz, the Reserve Bank of Australia (RBA) is unlikely to raise the official cash rate from the current record low 0.25% for a long while yet. And yesterday the RBA announced it will resume bond buying. From Bloomberg:

Reserve Bank Governor Philip Lowe announced the resumption of bond buying in Tuesday's policy statement, when the board kept its interest rate and yield target unchanged at 0.25%. Three-year yields have been "a little higher than 25 basis points over recent weeks," he said, adding that "further purchases will be undertaken as necessary."

Which ASX shares stand out?

Easy money or no, not all stocks in every sector are going to deliver big gains. Some, of course, will lose money.

Real estate and the banks are all under pressure. Their time will come again. But the current situation looks unlikely to improve in the coming months. Meanwhile the share price of many leading healthcare, resources and technology stocks have gone ballistic. And I believe many have a lot more growth left ahead of them. Though, obviously, not in a straight line higher.

Companies able to capitalise on the massive surge in online shopping have really sparked investor interest. That's a trend Wilson Asset Management was quick to jump onto.

Oscar Oberg is the lead portfolio manager at Wilson Asset Management's microcap fund WAM Microcap Ltd (ASX: WMI). Here's an excerpt of what he told the Australian Financial Review:

City Chic and Temple & Webster were both inaugural investments in the WAM MicroCap investment portfolio, and we are actually more positive in our outlook for these stocks today than when we first invested three years ago.

Both companies are benefiting from a structural shift to online shopping that we believe will continue to accelerate as lockdown measures are enacted to combat a second wave of coronavirus in Australia and the rest of the world.

Both companies have strong balance sheets and we see acquisitions as a strong catalyst for each business in FY2021.

The City Chic Collective Ltd (ASX: CCX) share price is up 28% year-to-date.

And leading homewares online retailer Temple & Webster (ASX: TPW)'s share price is up an eye-popping 202% so far in 2020.

Temple & Webster's growth potential also caught the eye of The Motley Fool's own Scott Phillips. He recommended the stock to members of his Share Advisor service on 28 May. Since then the share price is up almost 82%.

Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group 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.

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