Written by Ben C.
The global stock market has endured a particularly challenging time in recent months. While geopolitical concerns are something that investors have to respond to on a daily basis, the trade dispute between the United States and China has had protracted and far-reaching effects on economies across the world. At a time when markets were beginning to accept a potential resolution to that conflict, the unprecedented coronavirus outbreak sent economies into further turmoil.
Even a comparatively isolated nation like Australia has keenly felt the ramifications of the trade tensions and virus outbreak. The ASX 200, the nation’s benchmark stock index, has fluctuated alongside the relationship between the US and China, while the coronavirus has sent the index into a sustained and severe downward trajectory.
Monitoring global affairs is an essential part of options trading Australia, with options designed to give investors the chance to make long-term speculation rather than frantically reacting to new developments. At a time where geopolitical and health situations are changing rapidly, investors may be grateful for the long-term strategies facilitated by options. It is worth comparing how major companies on the ASX 200 have reacted in the aftermath of developments in the trade war and the virus outbreak, to demonstrate how options traders may have benefited from long-term positions on these companies.
Here is a brief overview of how these two world-changing events have affected stock prices in three sectors of the ASX 200, looking at the companies with the biggest market capitalization in banking, mining, and retail. The impact of the trade war will be assessed from 2018 until the 15th of January 2020, when the Phase 1 trade deal was signed. The influence of the coronavirus will be evaluated between the 17th of January and the 19th of March.
The Commonwealth Bank of Australia began 2018 trading at 80.220. After the Phase 1 deal was signed, CBA was trading at 84.460. There were natural fluctuations in this two-year spell, but it is telling that the 16th of January 2020 price was the highest level throughout the trade dispute to that point. CBA prices soared as high as 90.990 on the 14th of February but by the 19th of March, they were down at 60.950.
BHP Group similarly profited from the Phase 1 trade deal, with its price of 41.240 on the 20th of January, its highest level for six months. That was a significant increase on the value of 28.458 at the start of 2018. The coronavirus outbreak and its impact on the demand for commodities sent BHP’s price plunging back down towards its 2018 level, undoing the progress that the stock made despite the trade war.
The major retailer Woolworths began 2018 with a price of 27.310, but the company posted steady long-term gains to the backdrop of the trade war and reached 41.320 in the week after the Phase 1 deal. With the coronavirus affecting supply chains and consumer demands, Woolworths’ share price dropped a few points. However, prices rallied and reached 39.900 at the close of play on the 19th of March – one of its highest closes in trading history.
CBA suffered higher volatility throughout the period, given the worries that the trade war might instigate a global recession. Those fears became more intense as the coronavirus spread; hence CBA was more susceptible to a sharp drop in share price. BHP remained resilient throughout the trade war and posted steady growth, although the mining corp was naturally affected by the coronavirus. It is Woolworths that retained the most value as the coronavirus outbreak grew, with investors seeming confident that domestic consumer demand would remain high.
Market sentiment affects the volatility of stock indices across the world, while it impacts on different industries in different ways. The US-China trade war and the coronavirus outbreak are exceptional circumstances, but it is always important for investors to monitor even the smallest economic and political developments.