Skittish sharemarket investors have turned last year's market darlings into some of the worst performers this year, fuelled by fears their lofty valuations have set them up for a big fall if market conditions deteriorate.
Blackmores, Domino's Pizza Enterprises and Super Retail Group are among those with the highest price-to-earnings ratios on the market, after stellar performances in 2015.
But their share prices have corrected in the past six weeks, down 10 per cent or more and placing them in the bottom 25 per cent in terms change this year to date on the S&P/ASX 200 index, which is down 6 per cent.
The movements have been so eye-catching they triggered a "speeding ticket", or an ASX price query, from the sharemarket to Domino's, questioning its 20 per cent fall from $60.60 on February 1 to $48.56 on February 5, for which the company said it had no information that could explain the move.
The moves represent a narrowing of divergence in the best and worst stocks after a year of extremes, Bennelong Australian Equity Partners investment director Julian Beaumont said.
"In a slow growth environment, investors will continue to pay up for the few companies that offer reliable growth, but there is always a risk that this goes too far, and the market needs to rebalance back," he said.
Some investors are worried that some of these earnings may not eventuate if economic conditions worsen, Chad Padowitz, chief investment manager of global fund Wingate Asset Management, said.
"When you have a very high valuation, to become attractive, you've got a long way to fall," he said.
"The market at the moment is quite fragile in terms of sentiment, when things are slightly worse than expected, shares are being dealt with harshly, and we saw that on Friday with a lot of social media and tech stocks in the US."
The tech-heavy Nasdaq index fell 3.3 per cent on Friday, brought down by a savage 43.6 per cent sell-off of LinkedIn, after the company cited global economic conditions for its disappointing earnings results.
Also hit was Facebook, down 5.8 per cent, Amazon, down 7.7 per cent and Netflix, down 7.7 per cent – stocks that have some of the highest valuations in the United States.
While US investors fret about a slowing economy and weaker earnings, at home, the possibility that the US dollar may not continue its strength in the face of a declining chance of interest rate rises amid the global market turmoil warrants a rethink in companies with US-dollar-denominated earnings, Matt Felsman, private wealth adviser at Asia Pacific Prudential Securities, said.
"I think the US dollar has peaked. Investors with exposure to companies that make a lot of their earnings in US dollars need to reassess," he said.
But a lower US dollar is supportive for commodities, and some of the strongest performers year to date have been miners, including South 32, up 7.5 per cent year to date, and Mineral Resources, up 5.7 per cent.
Gold miners are top of the charts, three of the top four stocks are Northern Star Resources, Evolution Mining and Newcrest Mining, all up more than 15 per cent, reflecting the popularity of gold as a safe haven in times of volatility and uncertainty.
Local gold miners are enjoying the benefit of the spot price of gold rising 10 per cent so far this year at $US1166 an ounce, but also the lower Australian dollar. Gold is up almost 13 per cent in Australian dollar terms since January 1, while production costs sit near $1000, improving margins.
