Why are ASX and International ETFs Declining?

This year has so far been a good example of investors doing the opposite of what they should when it comes to investing, as they are certainly not heeding Warren Buffets mantra of buy in doom and sell in boom.

Why the strong outflows on ASX and International ETFs?

According to the recently released BetaShares Australian ETF Review for February, outflows from Australian ETF’s caused the industry to fall for a second consecutive month. They also reported for the first time in the industries history that the international equities category resulted in a net outflow and that new money inflows were at their lowest net figure in five years.

The report indicated that the results were partly due to falling global share markets, which I believe has caused concern for consumers about global economics and the much talked about potential for a stock market crash. Many investors also reduced their holdings in direct equities or exited the market based on similar fears.

Interestingly, the All Ordinaries Index closed just 6.57 per cent lower than it opened in January and it closed just under 1 per cent higher in February than it opened. While in March the market rose strongly back to where it started the year.

Given that the market didn’t unfold based on investor expectations, this created what is known as the herd mentality where the masses have acted out of fear. However, Buffets quote about buying in doom is not about following the herd. Those who understand this would have been excited at the market volatility that unfolded in the first quarter of this year and would be waiting patiently to buy good stocks at better prices.

When the market is volatile, investors would be wise not to pay attention to what the masses are saying and instead do the opposite. If the taxi driver and your friends were giving out hot stock tips, then maybe it’s time to be wary about an impending stock market peak. But if they are all fearful of a stock market crash, it’s time to get ready to take advantage of some great buying opportunities.

What were the best and worst performing sectors last week?

The best performing sectors included Utilities up 3.22 per cent followed by Consumer Staples up 1.72 per cent and Energy up 1.70 per cent. The worst performing sectors included Consumer Discretionary down 2.89 per cent followed by Information Technology down 2.60 per cent and Materials down 0.80 per cent.

The best performers in the S&P/ASX top 100 stocks included Mineral Resources up 12.29 per cent followed by Magellan Financial Group up 10.42 per cent and AGL up 8.19 per cent. The worst performing stocks included Lynas Rare Earths down 10.91 per cent followed by Aristocrat Leisure down 7.71 per cent and Block Inc down 6.76 per cent.

What's next for the Australian stock market? 

The All Ordinaries Index started last week on a positive note, as it trended up before showing some weakness towards the end of the week, closing just in the red for the week. In my last report, I mentioned that you shouldn’t be surprised if the market experienced a few down days last week and this is exactly what unfolded. I expect this weakness will be short lived, which may see the All Ordinaries Index fall to around 7,600 points this week.

Once the Australian stock market finds support, I am confident it will rise up into April and well into May to around 8,200 points and beyond before we see the next peak. For now, I recommend investors be patient and look for stocks in the top 50 that are likely to present some great opportunities in the next few weeks

For now, good luck and good trading. 

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.