Is Christmas cancelled for the ASX 200?

Posted: 2 December 2021 8:59 am
News
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The ASX 200 has historically had its best month in December, but will Omicron ruin investor gains?

The lead-up to Christmas is usually a bull run for investors, but with increased volatility caused by the latest COVID-19 variant, Omicron, markets may be different this year.

In fact, the first day of trading was red for investors.

Today the ASX fell 0.28%, or 20.10 points, finishing the day at 7,235.90 points.

This is despite major markets across Asia bouncing back from Tuesday's losses, led by the South Korean KOSPI rising 2.17% after a tumble of more than 2% on Tuesday.

Hong Kong's Hang Seng Index also saw strong gains, rising 1.4% after falling the day before.

While 1 day doesn't represent a monthly trend, investors are being urged to brace for a sluggish month, despite December being a historically good time for investors.

Why will this December be different?

History shows December is the second most bullish month for investors, with the ASX gaining 1.7% on average since its inception in 1993.

Saxo's Australian market strategist Jessica Amir explains why December, which is the market's second most bullish month, might not be as profitable for investors.

"Now the question is, will this December be different? Probably yes, as there is much uncertainty – markets are weary of Omicron (awaiting vaccine makers to develop a new vaccine), while retail sales are growing slower than expected (going against the grain as sales generally ramp up this time of year)," she said.

Adding to the troubles, according to Amir, are comments from the US Federal Chair Jerome Powell.

He explained that the central bank would taper bond-buying a "few months earlier than expected".

In other words, the Fed is withdrawing support for the economy due to rising inflation.

Powell also said "it's probably a good time to retire" the world "transitory" to describe inflation, which again will have a negative impact on share markets.

Buy the dip?

For those that are a half-glass-full kind of person, Amir points out that this could be an opportunity for investors, although it will be a volatile period.

"New information is driving the market's short-term direction, so keep an eye out and expect a big speed bump," she said.

"We're in an illiquid part of the season, so volatility is high at the moment with news dictating the market moves."

Hamish Tadgell, portfolio manager of the SGH High Conviction Fund, agrees, pointing out the uncertainty facing investors could be an advantage for those taking a longer-term view.

"Investors need to be aware that an over-reliance on models can be dangerous, resulting in them not seeing the wood for the trees, or understanding the real issues facing them," he said.

"They need to be able to adapt to change and take advantage of emerging trends such as the seismic shifts underway in decarbonisation and social infrastructure."

"It's important that investors don't fear uncertainty – it forces change, new ways of doing things, ingenuity, entrepreneurship."

Or minimise the volatility

For those who are looking to instead protect what they have, Amir notes they can trade to reduce volatility.

"To minimise volatility, you could consider hedging for the next couple of weeks. Perhaps consider currency options, which is what we are seeing some clients trade at the moment (with clients buying USDJPY – the dollar yen)," she concludes.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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