FOMO just got a reality check
Hot themes like gold, silver and copper have felt like a casino lately, but currency swings may be quietly creating better long-term opportunities elsewhere.
There have been lots of hot themes in the market recently – copper, gold, silver. It feels a bit like being in a casino. I’m playing the long game, and over in the corner there are people screaming in delight. I feel like I’m missing out. There’s FOMO. Why am I playing this sensible long-term game? I should be over there.
Well, a lot of those themes got a slap in the face this week. Silver was down 31.4% in one night. Gold dropped 11.4%. Copper fell 4.5%, then another 4.5% the next day.
Chasing momentum versus playing the long game
Quite a few of these moves got out of control in the short term because of the weight of money being thrown around by computers and into exchange traded funds without much regard for underlying fundamentals.
So the question becomes: is there anything that is a bargain at the moment?
I am seeing a couple of things worth pointing out.
US ETFs listed in Australia
One opportunity could be US ETFs traded in Australia.
While the S&P 500 was recently hitting record highs, IVV – one of the ETFs that represents the S&P 500 – was well off its highs. The same goes for FANG. We traded FANG occasionally and made a fortune out of it last year. We sold it in October, and it is now down over 10% since we exited. Yet the underlying stocks behind FANG are still doing quite well.
So why has FANG fallen? Why has the Nasdaq-style ETF QQQ dropped?
It is largely about currencies. The US dollar has taken a 13% dive since its peak last year and has seen extreme volatility. You could call it the “sell America” trade.
There is talk of a new world order emerging. Countries such as Korea, the UK and Canada have been engaging more with China. There are threats of tariffs and shifting trade relationships. Whether you agree with the politics or not, it looks as though some central governments are trying to reduce exposure to the US dollar.
When the US dollar falls and the Australian dollar rises, US-based ETFs listed in Australia can decline in price even if the underlying US stocks are holding up. In effect, US stocks are going down in Australian dollar terms because of currency movements.
That creates a situation where we may see opportunities in US-based ETFs traded in Australia that are not available to US investors. At the moment the market looks fragile, so I would not be rushing into big tech ETFs just yet. But at some point this currency effect is likely to create a genuine bargain.
Australian technology stocks
Another possible bargain is in Australian technology stocks.
There is an ETF called ATEC that covers the local technology sector. It includes stocks such as Xero, TechnologyOne, WiseTech and Block. These are companies investors would have climbed over broken glass to buy last year. Now some of them, like Xero, have halved.
These stocks have been going down because many assume AI will threaten their business models or force them to spend heavily to integrate AI into their software, squeezing margins in the process.
At some point, sentiment will settle. Investors will reassess. When that happens, the sector is likely to turn.
It is not all about FOMO and chasing whatever is screaming higher. It is about waiting for the right opportunity in sectors that have fallen into a hole. Keep an eye on ATEC and on US-based ETFs listed in Australia. Currency swings and sentiment shifts can create openings for patient investors.