Week In Review

Economy and Indices

The Australian market and most developed countries are down this week (at the time of writing).

Australian Market Correlations over the last month:

– US = Insignificant
– UK = Insignificant
– German = Insignificant
– 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. Healthcare

The Healthcare sector in Australia is 44% CSL, so as CSL goes the Healthcare sector goes.

As CSL earns a large portion of their revenue from overseas sales, or in USD, this sector is also a proxy for the performance of the AUD. Healthcare has been the strongest sector on the ASX for the last 5 years which is a strong reflection on how dominate the performance of the AUD against the USD has been for the Australian economy.

The performance of Healthcares this week has been driven by Cochlear (COH), up 14% on Thursday alone off the back of announcements in Reporting Season.

2. Utilities

Utilities are 31% AGL Energy (AGL), so a strong performance in utilities means AGL had a good week.

AGL had mild movements this week, although relatively that was a strong movement in the context of the ASX this week.

Typically Utilities are also a ‘defensive’ sector. Sometimes this means the Utilities sector goes up as the overall market falls, but more often this just means the rest of the market falls more than Utilities fell in a down week.

3. Materials (mining)

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

Following a strong few weeks form Gold companies, Materials Newcrest (NCM) has been the strongest contributing factor to this sector, being up 8% this week (at time of writing).

What is worth noting is that Vocus (VOC) and TPG (TPM) are up 500% and 675%, respectively, over the last 5 years, This compares to TLS up 200% 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. InfoTech

The IT sectors on the ASX is 44% Computershare (CPU).

CPU performed poorly this week, down 13% after disappointing earnings guidance announced in Reporting Season.

There are dozens of much smaller IT companies that have performed exceptionally well this year, however most are not even in the ASX Top 300, let alone the ASX 200 which means they have no impact on this index.

See Market Darlings below for some of these leading IT companies.

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.

All of the Big Four banks were down more than the market so far this week along with Macquarie (MQG), ASX (ASX).

Share to note this week were Bendigo Bank (BEN) and Bank of Queensland (BOQ) both reporting below market expectations in Reporting Season this week.

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. In the context of the last year, oil prices performed reasonably well this week, however that performance was also the ‘least best’ on the ASX this week.

There were not any individual companies in this sector with large movements to note 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 Mid-cap shares have significantly outperformed the rest of the market this week. This type of out-performance is unusual in falling markets because of ‘Stop-Loss Selling’ (smaller companies are normally sold before the blue-chips after large drops).

However the Australian market is in Reporting Season (read more on Reporting Season here). This is when the most significant announcements are made by listed companies. This week has seen positive announcements from some Mid-Cap companies which has taken this segment higher (despite Bank of Queensland falling off a cliff BOQ). These leading Mid-Caps are companies are:

– Cimic Group (CIM, old Leightons)
– Cochlear (COH)

The Twenty Leaders (‘blue-chips’) have been the worst performing segment this week, also by a notable amount more than the rest of the market. With this type of performance, it weighs heavily on the ‘The Market’, the ASX Top 200 (XJO).

Wesfarmers (WES) and Woodside (WPL) were the closest thing to ‘winners’ coming from this segment this week.

The divergence between the Mid-Caps and the Twenty Leaders this week is also reflected in their performances for the last year too.

Market Darlings:

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

Source Iress

Leading Market Themes

Gold Companies – This group has been the strongest on the ASX for a few weeks now. A picture tells a thousand words – see chart below.

Gold prices have been up across the world, and so too have the gold miners.

Smaller-Cap Gold companies to watch at the moment are: BLK, DCN, DRM, EVN, RMS, RSG and SLR.

Small-Cap focused Listed Investment Companies (LICs). As noted in the Segments above, the small-to-mid-caps on the ASX have been some of the strongest performers over the last year. The LICs specializing in this area have been some of the best performers of late, even making new highs in the last few weeks.

See the recent comparison of all ASX LICs and rankings here.

Smart Media – A group of innovative media companies that use digital technologies have continued to out-perform both print media and most of the market.

Smart- Media companies of interest are: APO, OML, QMS, TMP

Transportation Companies that benefit from low oil prices have been continuous climbers over the last few years.

The strongest of these companies have very little to do with mining transport or services. The best example of this is QAN has performed well, but REX which provided a lot of ‘fly-in fly-out’ mining services have been bundled up with the wallowing mining services group.

Shares of interest are: QAN, SYS, AIA, AIZ, MQA, SLK and ZNZ.