The Australian sharemarket, traditionally considered a safe haven during geopolitical turmoil, has diverged from this trend amidst escalating tensions in the Middle East. Unlike previous instances, the ASX has approached correction territory, mirroring declines seen in Japanese and Korean markets, falling nearly 10 per cent from its peak following the onset of the Iran conflict.
The underperformance stems from significant declines in the materials and financial sectors. The materials sector, constituting approximately a quarter of the S&P/ASX 200 Index, has plummeted over 20 per cent since the conflict’s beginning. Financials, representing about a third of the index, have also suffered, with losses exceeding 4 per cent. This is in stark contrast to the ASX’s historical role as a ‘ballast from global shocks,’ according to Ten Cap co-founder Jason Todd.
Concerns extend beyond sector-specific issues. Australia’s reliance on imported oil, with 80 per cent of its supply sourced from overseas, places the economy under pressure during energy shocks. The big four banks also face risks amid rising interest rates, prompting Morgan Stanley bank analyst Richard Wiles to downgrade his industry view of the big four banks from ‘in-line’ to ‘cautious’, citing downside risks to economic growth.
Defensive stocks, typically resilient during economic downturns, have also struggled. Packaging giant Amcor – a company operating in the packaging industry and can and glass bottle maker Orora, along with IGA supermarket owner Metcash, have all experienced declines this month. Even healthcare stocks such as CSL, ResMed, and Cochlear have faced sell-offs, influenced by the unexpected strength of the Australian dollar.
