It’s been a tough start to the week for the local buy-now-pay-later (BNPL) cohort:
The Zip Co Ltd (ASX: Z1P) share price sunk 10.14% to $4.36 reaching a 52-week low.
Similarly, Sezzle Inc (ASX: SZL) plummeted 16.14% to $3.19 to also reach an annual share price low.
Splitit Ltd (ASX:SPT) dropped 5.88% to $0.24.
Earlypay Ltd (ASX:EPY) fell 4.44% to $0.43.
Even Afterpay Ltd (ASX: APT) decreased 4.11% to $94.20.
So what is causing the dip? When will it end and what should I do as a BNPL investor?
The three I’s: inflation, interest rates and infection
Markets around the world have been on edge after the Chair of US Federal Bank, Jerome Powell said it’s time to stop calling inflation transitory.
In simple terms, inflation is the rise in the price of goods and services.
Supply bottlenecks and labour shortages has led to what was thought to be a temporary bump in the cost of products.
But inflation is still rising, leading reserve banks around the world to shift their policy towards potentially taming inflation.
Typically, a central bank’s mechanism for controlling inflation is via rising interest rates.
If interest rates rise, so does the rate of return required from assets such as shares and property.
In addition to inflation and interest rates, markets have been grappling with the impact of the omicron variant.
Knowledge about the new variant is still in its infancy, therefore plenty of uncertainty remains.
As a result of the “three I’s”, richly valued businesses such as Zip and Sezzle have been sold off to reduce risk in portfolios.
When will the sell-off stop?
Nobody knows when the sell-off will stop.
The S&P/ASX Information Technology index is down 2.20% today and more than 9% for the month.
Keep in mind though in the grand scheme of things today’s fall is just a brief blip in what has been a great year for markets.
The NASDAQ composite (a proxy for tech shares) is up over 18% for the year despite the recent dip.
What should I do with my BNPL shares?
An important consideration to keep in mind when stock prices go against you is why you bought the shares in the first place.
Were you looking for a short-term win? Do you believe in the structural growth of BNPL?
Or do the fundamentals of the specific company continue to track in the right direction despite the share price fall?
If it was a short-term win, it may be time to move on.
But if you’re thesis remains intact, short-term price movements will be a secondary thought over time.
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