Australian investors are being buffeted by a number of global-macroeconomic forces at present which is making it increasingly difficult to make top-down investment calls. These events which are resulting in a strengthening Australian dollar, a plunging iron ore price and a rising oil price will likely lead to increasing volatility on the ASX in coming weeks. This volatility will break the eerie level of calm the market has experienced recently.
The following three companies are all affected in different ways, but the volatility could create buying opportunities in certain instances.
With the iron ore price poised to drop below US$90 per tonne any day now, the outlook for mid-tier producers such as Atlas Iron Limited (ASX: AGO) is far from great. On Friday Atlas' share price fell 4.1% to a 52-week low of 59 cents. While Friday's fall wasn't as large as other iron ore miners including Fortescue Metals Group Limited (ASX: FMG) and BC Iron Limited (ASX: BCI) which fell 6.2% and 7.8% respectively, Atlas' 52-week return is far worse than many of its peer group.
With little reason to suspect a bounce back in the iron ore price any time soon, there would appear to be few catalysts for buying iron ore miners. That being said, the leverage to a higher iron ore price means this sector remains a 'hold' and should be monitored for an eventual buying opportunity.
Given the multitude of investment headwinds, many investors prefer the safety of blue-chip stocks. Brambles Limited (ASX: BXB) offers investors a diversified revenue base and while its organic growth will be tempered by the weak economic growth in many regions, Brambles' management is sure to use the opportunity to strengthen the group via acquisitions.
While Brambles' stock certainly doesn't appear cheap, for long-term portfolios it could make for a conservative addition at present.
Qantas Airways Limited (ASX: QAN) could be a beneficiary of a strengthening exchange rate. A high Australian dollar makes overseas travel more appealing and with Qantas holding a solid position in the domestic outbound travel market this plays to the airlines' advantage.
The flip-side is that as Warren Buffett has warned many times – the airline business model is fatally flawed, implying that there is perhaps never a good time to buy airline stock! With Qantas' share price well up from its recent lows, shareholders may be better off using this price strength as an opportunity to switch into higher quality businesses.
