The potential for an effective coronavirus vaccine split the local sharemarket on Tuesday, as investors dumped lockdown beneficiaries in favour of value or cyclical stocks all but written off on the back of another lockdown cycle in Europe and the US.
Fund managers said Tuesday’s wild sharemarket valuation swings were a result of profit taking and sector rotation, with tech stocks among the biggest losers as the S&P/ASX All Technology Index slumped 5.4 per cent – the biggest one-day fall since March.
“The high efficacy of the Pfizer candidate, if successful, provides a clearer and shorter global path to reopening,” said Chris Tynan, an investment analyst at DNR Capital.
“Combined with fiscal stimulus there is a risk a steepening yield curve may drive a further value rotation and negatively impact tech valuations.”
As longer-dated, risk-free government bond yields rise, the steeper yield curve signals investors expect inflation and growth. This means the longer-dated expected cash flow growth of tech businesses becomes less valuable to investors.
Benchmark risk-free US 10-year bond yields jumped above 0.95 per cent in the immediate aftermath of the vaccine news and have risen from lows around 0.8 per cent in the 24-hour aftermath of the US election.
Ten-year US treasuries yielded more than 0.9 per cent on Tuesday afternoon.
In response to the changing macro environment, tech shares coveted for their long-dated cash flow growth – including the WAAAX stocks (WiseTech, Altium, Appen, Afterpay, and Xero) – tumbled. Afterpay, which makes most of its revenue online, fell 10.9 per cent to $93.18 on Tuesday, with the rest down between 1.1 per cent and 8.9 per cent.
Small cap tech also copped a beating. Data centre business NextDC lost 13.9 per cent; PushPay fell 7.3 per cent, TechnologyOne shed 3.8 per cent, and Nearmap crashed 7.5 per cent.
Whether or not the rotation out of tech stocks is here to stay or is more of an adjustment lower is an open question, according to Ben Clark, a portfolio manager at TMS Capital.
He said the tech sector’s sell-off should be viewed in the context of strong gains since the outbreak of the pandemic and added the likelihood of ongoing central bank stimulus, alongside a one- to two-year timeline for an effective vaccine roll-out, still painted a bullish picture for equities.
“I reckon the set-up for equities over the next couple of years looks pretty outstanding. You’ve got the lowest interest rates in history, quant easing, fiscal stimulus, rebounding earnings on the back of this,” he said.
“It all lines up for a pretty strong market. There’s still a lot of money in cash; there’s a lot of quite bearish fundies out there, who will have been caught out with this. To me it sets us up for a pretty good few years.”
Any vaccine is far more likely to harm the valuations, rather than the earnings, of leading technology and software businesses, with the outlook for earnings growth strong with or without a vaccine, in Mr Clark’s view.
Investors also dumped shares in the e-commerce sector on the expectation that soaring sales and profit margins in 2020 would be impossible to repeat with loosening restrictions in 2021.
Online-only furniture retailer Temple & Webster lost 20.6 per cent to $9.93, and Kogan.com plunged 17.1 per cent to $19.81.
While online marketplace Redbubble, which has relied on face mask sales for much of its stunning growth in 2020, lost 20 per cent to $3.95.
“The contrast between the e-commerce darlings and bricks and mortar retail property is interesting,” said Mr Tynan.
“Internet retail will continue to thrive, but the manic valuation of some pure play e-commerce retailers is capitalising on a level of penetration and consumer behaviour that isn’t realistic in a post-vaccine world.”
Elsewhere in the e-commerce space, newly listed furniture marketplace MyDeal lost 16.7 per cent to $1.20, and 2020’s biggest initial public offering, Adore Beauty, dropped 9.2 per cent to $5.80.
Food delivery businesses Domino’s and Marley Spoon lost 11.2 per cent and 23 per cent respectively on bets 2021 would see a revival in Australia’s hospitality sector.