How has Covid changed investor behaviour on the Australian stock exchange?

Stock Exchange
Stock Exchange

Investor behaviour on the Australian stock exchange has changed considerably during the last 18 months. Before the pandemic, the S&P/ASX 200 Index soared to record levels and was in the midst of a bull run that looked set to continue despite some medium-term concerns.

All of that changed between late February to mid-March when the ASX 200 slumped 30%, mirroring the decline of other stock markets, most notably the S&P 500 in the US. During this period, the main pattern of behaviour was net selling, but as investors adjusted to a “new normal”, this swung in the other direction.

Seeing the recent share price declines of companies that had struggled to cope with the fallout of the pandemic and its restrictions and lockdowns, retail investors went ahead and bought these cheaper stocks in droves. In April, the volume of trades soared, especially in sectors like aviation and retail, which had been harder hit.

Many new traders, now with more time on their hands, began trading stocks. Data from nabtrade shows that new account applications soared 500%, as did “how to buy shares” searches on Google.

The influx of new traders was initially a red flag for regulators due to concerns about a notable rise in speculative investments. However, those entering markets for the first time bought shares in bigger, more established stocks in banking and invested in Exchange Traded Funds (ETFs).

Traders who read the latest stock market analysis at Australia’s largest independent stock market news site will have quickly realised that investor behaviour was quite conservative. However, since the pandemic, investors appear to be more willing to put more money into the market when there is a downtrend.

An ASX Australian Investor study found 12% of traders would buy more shares during a fall of the index, which is a rise from the 5% who said so three years ago. It highlights how investors now recognise a decline as an opportunity rather than something to be feared. Investors are happy to hold onto stocks for the long term too. Four in five traders would not sell during a downturn.

Those who bought stocks that fell are making profits, at least for now. Dr Kumari Ranjeeni noted in his research: “When we looked at the data, we realised that if investors adopted a short-selling strategy for stocks that suffered significant negative effects from the coronavirus fear and post-event return drift, they would have gained profits ranging from 2.14 per cent to 13.81 per cent.”

Stimulus checks from the Federal Government also helped to rally the market and boost investor confidence. When coupled with the recent rise of Reddit-based investors looking to take on short-sellers, there were again concerns about speculation.

However, 18 months after the first effects of the pandemic, the signs are that most investors are being cautious and are ready to wait to make the right moves. Trading volumes are down while cash balances are on the up. Behaviour has changed, but the focus is still on making profits sustainably.

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