Week In Review

Economy and Indices

The Australian market is down this week, with most of the falls coming from Thursday and Friday’s sessions. The ASX200 remains around the mid-point of the highs and lows since mid-August.

Australia’s RBA left interest rates on hold this week, in line with expectations

So far this week the European and US markets are down similar to the ASX200, while the Chinese and Japanese markets are up mildly.

Sectors

Sectors on the ASX are a classification which is given to each listed company to describe the industry group they operate within.

The top three sectors this week were:

1. Telecommunications
Telstra (TLS) dominates this sector with a staggering 78% weighting. It is fair to say that where TLS goes, the Telcos go. While this has been the strongest sector on the ASX for the last 5 days, it has also been the second strongest sector over the last 5 years.

What is worth noting is that Vocus (VOC) and TPG (TPM) are up 500% and 675%, respectively, over the last 5 years, but both still have low weighting to the sector as a whole.

2. Financials (Excluding Property)
Financials (ex. Property (XXJ)) is dominated by the Big 4 Banks. Because of the Big 4 Banks’ dominance on the XJO this reinforces the ‘Beta’ driven market moves of this sector, which means because of XXJ’s sheer size on the XJO, it’s difficult for either index to move in the opposite directions.

Recently there has been a de-coupling of the large banks in Australia; CBA and WBC have recovered more than ANZ and NAB. This shows a higher risk has been attached the latter two, which appears to be attributed to a risk of raising more capital. This year Bank of Queensland (BOQ) is the leader is the banking group by a long margin.

3. Consumer Discretionary (retail)
This sector is more evenly spread than most sectors on the ASX and provides a balanced view of the sector.

The performance this week was helped by a few of the larger companies making new all-time, or multi-year highs; REA Group (REA), Tatts Group (TTS), Aristocrat (ALL), Dominos Pizza (DMP) and Premier Investments (PMV).

The Weakest sectors were:

1. Materials (mining)
Materials are dominated by BHP and RIO, together making up 44% of the Materials index (XMJ).

The strongest contributing factor to Materials being down is BHP returning to 2008 lows. This fall is a combination of both company-specific news and world commodity prices that have not been helpful to this sector this week.

2. Healthcare
The performance of Healthcares this week has been detracted by Healthscope (HSP) Ramsay (RHC) and Resmed (RMD) all falling this week.

Segments

Segments are the classifications given to companies of similar sizes for their market capitalisation (total company value by share price).

Within the ASX Top 200, the segments are:

– The 50 largest (‘Fifty Leaders’) and generally called the ‘blue-chip’;
– The next 50 companies (from 51 to 100th largest) are the ‘Mid-cap’ shares; and
– The last 100 of the Top 200 (from 101 to 200th) are the Small-caps’.

The Top Twenty (XTL) was the best performing segment for two weeks running. This often coincides when Financials perform well for the week (as mentioned in the Sectors above).

While the Mid-cap (XMD) shares have led the ASX for a few months, they are the weakest segment for two weeks running. The Emerging companies (XEC) provided a similar performance to the Mid-Caps this week.

The rest of the segments provided similar returns to the ASX 200 (XJO), which was only marginally behind XTL.

Market Darlings:

These are the shares we all wish our portfolios were filled with – the leading shares of the leading groups on the ASX.

Leading Market Themes

Consumer Discretionary shares have continued to perform well, notably: professional services, auto companies, food, media and entertainment companies. There are significantly more Consumer Discretionary shares in the Mid-Cap index (XMD) than the Top 50 (XFL) which has helped the Mid-Caps to continue to provide strong returns over the last six months. Given the small weighting the Mid-caps have on the XJO, the positive movements over the last few months have been negated by the largest companies in the XJO.

Technology companies, mostly software/‘cloud’ related and non-physical solutions, are providing the strongest returns on the ASX. A lot of these companies are small and mirco-caps and some are not even in the All Ords index (XAO).

Retirement related services also continue on a steady rise. These shares range from retirement homes, healthcare facilities and ageing services and technologies.