Shares in AVZ Minerals Ltd (ASX:AVZ) tracked lower today and finished 7% in the red by the close of trade on Tuesday.
The AVZ share price walked lower today despite no market-sensitive information from the company or its constituents.
Although, the benchmark S&P/ASX 200 Index (ASX: XJO) also finished down 65 basis points alongside the S&P/ASX 300 Metals & Mining Index (ASX: XMM), itself trailing the market at a 3.37% loss today.
One important factor to consider is that AVZ was just added to the benchmark index on 4 March, meaning shares are now susceptible to buying and selling from large investment funds restricted to ASX 200 shares in their mandate.
With both major indices taking a hit today, it appears there was weakness across the board in Australian markets today.
Image source: Getty Images
What else could be at play?
Understandably, many investors might be confused as to why AVZ is faltering today as the price of lithium continues to set record highs.
The battery metal has climbed more than 29% in a month and is up more than 600% in the last single year. Recently, it surged again from November last year and has set continuous record highs to today.
Even more perplexing, is that when zooming out and scoping out a longer time frame, the AVZ share price and the price of lithium (and what the market expects to pay) track each other very closely.
The chart below shows AVZ versus the March 2022 lithium futures contract's rolling return over the past 12 months, plus the corresponding changes.
However, over the past week or so, the relationship has soured and there appears to be more at play than just the correlation between the price of lithium and AVZ stock.
Stock markets around the world have taken a beating in the past few weeks amid the tension and conflict arising from the Russia-Ukraine situation in Europe.
In fact, across the board asset classes are absorbing losses and there isn't much escape for investors in the form of a safe haven.
Raw commodities, such as gold, lithium and nickel (and not necessarily equities backing these) are just about the only asset group that is faring gains in 2022, with most other sectors and/or products down considerably.
Nickel spot basically doubled overnight amid supply fears from the conflict in Europe, for example.
It has soared 144% in the past 5 days while the iShares MSCI World Index Fund (NYSE: URTH), i.e. the 'world stock market' has dropped nearly 4%.
As seen on the chart below, benchmarks for all major stock indices around the world are crumbling in 2022.
Each of the London FTSE 100 Index (UKX), the S&P 500 Index (NYSE: SPX), Germany's DAX Performance Index (GDAXI), the S&P/ASX 200 Index and Euro Stoxx 50 (SX5E) are down considerably this year to date and have diverged completely from the commodities sector.
Notably, each of these benchmarks is (or was, anyway) heavily weighted towards a tech bias.
However, the global commodities bucket has outstripped traditional equity markets and is soaring to new highs, as seen by Bloomberg Commodities Index (BCOM) in purple and the S&P/ASX 300 Metals & Mining performance above.
When looking at AVZ from a longer timeframe – the last 6 months to be exact – we see it has tracked the Australian mining basket closely and is trading above the benchmark index by a considerable amount.
As such, it appears the selloff in AVZ shares is a part of a wider selloff across the board in markets today. A homage to remaining diligent to a long-term perspective when investing.
AVZ share price snapshot
In the last 12 months, the AVZ share price has soared over 303% and another 4% this year to date. During the past month of trading, shares have eclipsed a gain of 6%.
The current levels that AVZ is trading at mark the highest prices in its history since first listing on the ASX back in 2007.
