• The year 2022 saw the Energy sector rising by 30%, and the Tech sector plunging by 30%
  • Is this a good time for dip buying?
  • We look at the worst ASX stocks in 2022

 

The year 2022 has been remarkably volatile as multiple adverse shocks hit the global economy.

From record breaking inflation to central banks’ incessant rate hikes, and Russia’s invasion of Ukraine – the year has been the most turbulent in recent memory.

The CBOE VIX index, which measures volatility in the US stock market, has surged by 50% over the last 12 months.

Despite the turmoil, the Australian stock market has been resilient and actually performed better than most other developed markets.

The ASX 200 is down by only 5% this year – compared to the double digit falls in both the S&P 500’s and Stoxx 600.

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Sector wise, the ASX Energy Index (XEJ) was the best performing in 2022, up by 30%, as the steep rise in energy prices ironically shielded the local market.

The worst sector was Tech, which fell by 30% amid an unprecedented rise in interest rates. A rising rate cycle adversely affects tech valuations due to the discounting model used.

Other sectors that have been hit hard include Discretionary and Real Estate, which also fell victims to higher rates.

 

Should we buy the dip and if so, when?

Most analysts agree there is really no quick recovery in sight for stocks and bonds, as long as the Fed Reserve remains on hawkish mode.

Many believe the Fed will continue to choke off the economy in order to tame inflation, which means we’re likely to see a recession first before seeing any rebound in stocks.

But while head honchos on Wall Street tipped a US recession next year, Frank Uhlenbruch of Janus Henderson reckons Australia could avoid it.

“A recession is not our base case, but it remains a significant risk given the uncertain paths for the Russia/Ukraine conflict, energy prices and offshore central bank tightening,” Uhlenbruch said in a note.

So is now time to buy shares on the dip, while others are fearful?

Peter Oppenheimer, Goldman Sachs’ chief global equity strategist, says that pinpointing exactly when a market transforms from a bear to a bull is difficult because bear market rallies are common when stocks are falling.

Oppenheimer explained that low valuations are a good starting point to pick out a bottom, but they are not sufficient.

Instead, we need to look at other factors like earnings and profits.

“You tend to find that while equity markets do recover while economic conditions are still weak and profits depressed, it’s usually not until the rate of deterioration has slowed that investors really start to price in a recovery,” Oppenheimer said.

Meanwhile, Blackrock’s investment playbook for 2023 says that simply ‘buying the dip’ doesn’t apply in this regime of greater macro volatility.

“Navigating markets in 2023 will require more frequent portfolio changes, and a new investment playbook,” says Blackrock.

“It also calls for taking more granular views by focusing on sectors, regions and sub-asset classes, rather than on broad exposures.”

Despite remaining in a defensive position, Blackrock says it sees opportunities in the health-care sector, as well as in some cyclical sectors.

 

Worst performing ASX stocks this year

On the ASX, there were dozens of stocks that have lost a good chunk of their market cap in 2022.

These were the top 40 worst performing stocks on the ASX in 2022 (as of 12th December 2022).

 

20 Worst Medium/Large Caps in 2022

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And these were the top 20 worst performing small cap stocks on the ASX in 2022.

 

20 Worst Small Caps in 2022

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A quick recap of what happened in 2022 …

Tabcorp (ASX:TAH) – 80%

Gambling giant Tabcorp lost most of its value as a result of demerging its lottery business into a brand new ASX-listed company, The Lottery Company (ASX:TLC).

Tabcorp recorded a 22% net loss in FY22 as it adjusted to life without its lottery arm cash cow.

Investors had earlier pressured Tabcorp’s board to spin out the money making Keno and lotteries divisions from the struggling bookmaking and wagering arm.

Hexima (ASX:HXL) – 95%

Hexima’s backers saw their investment go up in smoke as the share price melted this year.

In July, Hexima surprised the market with a discouraging Phase 2 trial readout of its pezadeftide (HXP124).

Hexima reported 114 Adverse Events from the trial and saw only modest evidence of HXP124’s effectiveness in the treatment of onychomycosis.

City Chic Collective (ASX:CCX) – 90%

City Chic shares plummeted as investors were spooked by the company’s inventory position announced during the company’s AGM.

City said it expects inventory levels to be in the range of $168 million to $174 million at the first half, sparking concerns it might not be able to sell them.

Brokers have also given City Chic the flick, with both Goldman Sachs and Jarden downgrading the stock.

City Chic’s brands include Avenue, City Chic, Evans, and Navabi.

Megaport (ASX:MP1) – 70%

Megaport’s fall from grace in 2022 was driven by its weakening revenues over the past few quarters.

After clocking up quarterly double digit growths in FY21, Megaport’s monthly recurring revenue (MRR) growth has declined to single digits in the last few quarters (except for June).

The company also disappointed investors when it reported a decrease in quarterly data centre installations by 1% , signalling sluggish growth.

Imugene (ASX:IMU) -60%

Former market darling Imugene had a breakout year in 2021, earning a spot in the benchmark ASX 200 index for the very first time.

Its share price surged over 20x in less than 24 months to November 2021, taking the valuation to an eye-watering $3.3 billion and earning the company ‘unicorn’ status.

But the company wasn’t able to maintain the high valuation, falling by more than 60% this year despite making good progress in its cancer trials.

Imugene is developing a range of immunotherapies that treat tumours, but the most progressed is its Phase 2 HER-Vaxx trial targeting gastric, breast, ovarian, lung and pancreatic cancers.

Lumos Diagnostics (ASX:LDX) – 90%

Lumos plunged by more than 90% this year after revealing that its device submission for FebriDX has been rejected by the US FDA.

The FDA had apparently expressed concerns regarding the risk that false negative viral infection test results from FebriDX could lead to missed opportunities to treat patients, and contribute to the spread of SARS-CoV-2 infections.

Lumos has since been looking to raise up to $8m from US-based institutions as it looks to focus on its services business.

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