Some A$130 billion ($91.4 billion) in market capitalisation was erased from Australia’s equity market over the week as investors reacted to an intensifying conflict in the Middle East and the aftershocks of an unusually volatile earnings season. The benchmark S&P/ASX 200 index has dropped 3.8% since the weekend when the United States and Israel began bombing Iran - a decline that has wiped out about half of the index’s gains for the whole of February.
The ASX 200 slipped 1% on Friday, leaving most blue-chip names in negative territory for the day. Global markets also moved sharply lower, as investors worried that a broader conflict could push oil prices higher and rekindle inflationary pressures, prompting steep falls in both equities and government bonds.
Analysts warn of extended downside if conflict continues
Market strategists cautioned that Australia is particularly vulnerable to global downturns. "Global downturns always hit Australia harder than other jurisdictions, and I think we could see a real downturn if the war goes on for too long," said Nick Twidale, chief market strategist at ATFX Global. He added that once the conflict is resolved there is likely to be upside for Australian assets, but at present the situation appears to be unfolding with ongoing risk.
Phil Cornet, a portfolio manager at Atlas Funds Management, noted that a prolonged war would be negative for asset prices worldwide and that Australia would not be immune from such moves.
Earnings season amplifies moves at the single-stock level
The current sell-off followed a half-year reporting period that produced outsized reactions to results. More than a third of ASX 200 companies moved by over three standard deviations on the day they reported earnings - the highest share since JPMorgan began tracking the metric in 2015. "February’s results season delivered another record for single-stock volatility," wrote JPMorgan’s Australia equity strategists led by Jason Steed.
Data from LSEG showed that Australia’s top 20 companies, which comprise nearly two-thirds of the ASX 200 by weight, experienced their most volatile February in six years.
Individual winners and losers
Some large names swung sharply on their results. Biotechnology company CSL fell as much as 12% after reporting an 81% decline in first-half profit. Retailer Coles dropped more than 7% after warning of a sluggish start to the second half. By contrast, firms viewed as more resilient to disruption tended to fare better over the reporting window.
Cameron Gleeson, a senior investment strategist at Betashares, said companies involved in resource extraction, oil drilling, or operating as licensed and regulated financial institutions were seen as more resistant to disruption in the current environment.
Reflecting that divergence, BHP Group surged 7% to reach a record intraday high, while Commonwealth Bank of Australia rallied more than 8% in its strongest session since March 2020 after reporting earnings that beat consensus expectations.
Market context and lingering uncertainty
Investors are watching two related sources of uncertainty: the trajectory of the Middle East conflict and the follow-through from an earnings season that has delivered unusually large single-stock moves. Rising oil prices are a particular concern because they can feed into broader inflation measures and alter central bank policy outlooks, which would in turn affect asset prices globally and in Australia.
At present, market participants continue to digest large company-specific results and weigh geopolitical developments, leaving near-term direction dependent on both the conflict’s path and incoming corporate data.
Note: $1 = 1.4225 Australian dollars.