The Australian and US markets were down slightly this week (at the time of writing) after seeing wide trading ranges (volatility).
Most other developed countries are down this week.
RBA, and Bank of England both left rates on hold this week, as expected.
Bank of Japan Governor said there’s “no limit” to monetary easing, saying that it is “possible to cut the interest rate further from the current level of -0.1%”.
Australian Market Correlations over the last month:
– US = Insignificant
– UK = Significant
– German = Weak
– Chinese = Insignificant
– Japan= Very weak
– India= Significant
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. 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 from prices last seen in 2005, RIO has also bounced off prices last seen in 2008.
2. Property
Also known as ‘AREITs’ (XPJ) and is fairly well spread across the sector. This sector is rather defensive with consistent yields and rather steady asset/company values.
With the low interest rate environment in AU and the ‘Yield Compression’ of 2015, this sector has performed reasonably well. However, since the Big 4 Banks dropped out of favor in April 2015 this sector has stopped rising and churned sideways, somewhat better than the overall ASX.
Scentre Group (SCG) is the largest in this group and a strong performer this week.
3. Telecommunications
Telstra (TLS) dominates this sector with a staggering 78% weighting. It is fair to say that where TLS goes, the Telcos go. This has been a strong 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 515% and 712%, respectively, over the last 5 years, This compares to TLS up 193% over the same period.
Despite the capital growth in both VOC and TPM, both companies still have low weighting to the sector as a whole.
The Weakest sectors were:
1. Consumer Discretionary (retail)
This sector is more evenly spread than most sectors on the ASX and provides a balanced view of the sector.
Some of the larger Consumer Discretionary shares had negative announcements this week which brought the sector down, namely:
Tab Corp (TAH) and Domino’s Pizza (DMP)
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. Energy (oil and gas)
Energy is a cyclical sector and its performance is often a function of the world prices for oil and gas commodities.
Woodside Petroleum hold 38% of this sector and Oil Search and Caltex both have about 10% each which makes it difficult for the index to move in a different direction to these three companies.
The performance of these shares was not to dissimilar from the rest of the market 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’.
This week has an unusual mix of segment performances.
The Fifty Leaders out-performed the Twenty leaders. The main contributors to the Fifity’s strength is AGL, Newcrest (NCM) and Australian Pipelines (APA). Conversely Macquarie (MQG) and Brambles (BXB) had the biggest falls of the Top Twenty this week.
The weakest segment was the Mid-Caps. The notable falls in this group were Dominos (DMP) and Ansell (ANN), these two companies fell significantly on Thursday which brought Mid-caps down well below the other segments for the week.
Market Darlings:
These are the shares we all wish our portfolios were filled with – the leading shares of the leading groups on the ASX.
| Security | Description | Economic Sector | Annual Return | Rank |
| BKL | Blackmores Limited | Consumer Staples – 30 | 326.36% | 9 |
| BAL | Bellamy’s Australia | Consumer Staples – 30 | 516.57% | 5 |
| CGC | COSTA GROUP HOLDINGS | Consumer Staples – 30 | 250.34% | 12 |
| BWX | BWX Limited | Consumer Staples – 30 | 291.90% | 10 |
| HUB | HUB24 Ltd | Financials – 40 | 371.82% | 7 |
| OVH | Onevue Holdings Ltd | Financials – 40 | 207.41% | 15 |
| OSL | Oncosil Medical | Health Care – 35 | 211.59% | 14 |
| RAP | Resapp Health Ltd | Health Care – 35 | 650.00% | 1 |
| SIQ | Smartgrp Corporation | Industrials – 20 | 214.86% | 13 |
| ADA | Adacel Technologies | Information Technology – 45 | 648.15% | 2 |
| NTC | Netcomm Wireless | Information Technology – 45 | 369.90% | 8 |
| SMN | Structural Monitor. | Information Technology – 45 | 254.02% | 11 |
| APX | Appen Limited | Information Technology – 45 | 166.67% | 16 |
| SMA | SmartTrans Holdings | Information Technology – 45 | 375.40% | 6 |
| FLN | Freelancer Ltd | Information Technology – 45 | 150.72% | 18 |
| GXY | Galaxy Resources | Materials – 15 | 580.00% | 4 |
| SBM | St Barbara Limited | Materials – 15 | 595.65% | 3 |
| SDA | Speedcast Int Ltd | Telecommunication Services – 50 | 156.99% | 17 |
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
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).
‘Inverse Oil Exposure’ has continued to perform well. These are companies whose bottom line is positively impacted by lower oil prices. Examples are SYD, QAN and other transport related companies. SLK has been one of the best performers from this group and one small-cap to note is ZNZ who import, distribute and sell transport fuel.
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.
Retirement related services also continue on a steady rise. These shares range from retirement homes, healthcare facilities and ageing services and technologies.
Food related producers/distributors are also performing well although are only represented by small market capitalised companies.
