Australian investors are hoping for a late-year rally, but a recent shift in market sentiment has left its mark, especially on the ASX’s speculative stocks. Goldman Sachs reports a 24 per cent plunge in their basket of “unprofitable growth” stocks since mid-October. These companies, typically with low or no profits but strong growth prospects, had previously performed well both locally and in the US.
However, a hawkish turn by the Federal Reserve and the Reserve Bank of Australia, coupled with growing doubts about the artificial intelligence boom, triggered a violent shift in sentiment around six weeks ago. Concerns over debt-funded tech capital expenditure have amplified the focus on fast-growing companies with low or negative free cash flow.
Some high-growth stocks have experienced significant reversals. WiseTech Global, which provides software solutions to the logistics industry, is down 44 per cent from its peak, while Xero, a cloud-based accounting software company, has fallen 38 per cent. Other notable declines include Temple & Webster and TechnologyOne, down 34 per cent and 29 per cent respectively.
Despite the corrections, some analysts see opportunities for bargain hunting among oversold stocks. Goldman Sachs has identified 13 names meeting criteria for high growth, significant declines, and trading below recent trough valuations, including Zip, Xero, WiseTech, Guzman y Gomez, and others. Historically, unprofitable growth stocks have rebounded strongly after corrections, suggesting potential for future gains, though bravery remains essential when investing in high-growth, low-profit companies.
