Australian ‘growth’ stocks are trading close to 10-year lows, according to Goldman Sachs.
In a research note, the investment bank said these companies had been the worst performers during the recent sell-off, diving about 20% from their peaks in February versus about a 7% fall by the ASX 200 index.
Growth stocks are companies that are expected to grow faster than other companies, often by reinvesting earnings rather than returning them to shareholders as dividends.
“This performance looks even more dislocated when you consider that they generated market-like returns during the last two major economic shocks of the past 30 years (modestly outperforming during both the GFC and Covid sell-offs),” Goldman Sachs analysts Matthew Ross and Tony Wu said in the note.
“There are a few factors at play here that help explain some of this break from history, but we note that ‘Growth’ valuations are now close to the trough levels that they’ve traded on over the past decade.”
They said that although the long-dated nature of their earnings typically made ‘growth’ stocks less sensitive to economic cycles, many of them had high levels of sales to the United States, which has announced tariffs on imports.
Stocks in Goldman Sachs' high growth ‘screen’ generated an average of 30% of their sales from the U.S. and were more exposed to the American economy than the broader market.
“While many of these firms operate in technology or service businesses with relatively low direct tariff impacts, they will still have to navigate the rising U.S. recession risk (our team puts it at a 45% probability),” they said.
Goldman Sachs also said U.S.-exposed firms were not receiving the usual gains from a lower Australian dollar compared with previous bear markets because the currency had risen 1% compared with an average fall of 12%.
Another factor that explained their relatively poor performance was the modest amount of easing priced into interest rate curves due to concerns about the inflation impacts of tariffs, as well as the US fiscal position.
The underperforming Australian stocks with low levels of U.S. sales were: Redox (ASX: RDX ), Macquarie Telecom Group (ASX: MAQ), Guzman y Gomez (ASX: GYG), NextDC (ASX: NXT), Seek (ASX: SEK), HUB24 (ASX: HUB), Goodman Group (ASX: GMG), Tassal (ASX: TUA), Netwealth (ASX: NWL), Technology One (ASX: TNE), Gentrack Group (ASX: GTK), and REA Group (ASX: REA).
