Week In Review

• Reporting Season Wrap-up;
• Expected RBA Cash-movements for the year ahead;
• Energy Sector leading the ASX this week;
• Big Four Banks Pulled the market higher along with BHP and RIO;
• Small gold companies you, woulda, coulda, shoulda had; and
• The leading themes that are really powering the ASX

Economy and Indices

All of the world’s major share markets are up this week (at the time of writing). Gold markets are still capturing a lot of trader’s attention holding strong gains from the last month or so.

RBA left interest rates on hold in-line with expectations. Here’s the Yield cure for Australia which shows the expected movements from the RBA over the next year:

Source: asx.com.au

Australian Market Correlations over the last month:

– US = Insignificant
– UK = Very Weak
– German = Very Weak
– Chinese = Insignificant
– Japan= Very Weak
– India= Very Weak

Reporting Season Wrap-up:

After the majority of the ASX-listed companies have reported if has become apparent that:

– Lower GDP for Australia. After reporting season the earnings-growth forecasts have all been revised down. This means as recent as last month, the country’s analysts thought Australia would have more growth that what has been reported in the last few weeks
– Profit margins remain fairly strong, although that’s mostly from cost-cutting measures
– With lower growth forecasts and equal profit margins it means there is more pressure to reduce dividends in the near feture.
– 29% of companies beat expectations (better)
– 31% of companies missed expectations (worse)
– 40% of companies were in-line with expectations

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. 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. However in the midst of Reporting Season, the largest shares in this sectors have been the driving forces behind this week’s rise.

Energy came from last place a week ago to first place this week. Oil prices were up this week, although it’s worth noting that most of the shares in this sector are down over 30% in the last year

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.

From near last place this week, this sector has bounced back off recent lows this week.

3. Materials (mining)

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

BHP and RIO have been coming off low prices not seen in almost a decade and aided by increases in iron ore prices this week.

The Weakest sectors 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.

TLS traded ex-dividend on Tuesday which pulls this sector down almost the whole dividend amount. This anomaly appears each time TLS trades ex-dividend.

2. Consumer Staples

Woolworths (WOW) and Wesfarmers (WES, ‘Coles’) dominate this sector.

This sector is seen as a ‘defensive’ asset allocation and is expected to lag behind the rest of the market in strong week like this week.

There is little surprise to see this sector in second-worst place.

3. Utilities

Utilities are 31% AGL Energy (AGL), so a weak performance in utilities means AGL had a poor 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. This week is an example of the latter.

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 Fifty / Blue-Chips were the market leaders this week by a reasonable margin that kicked in on Wednesday. The Big 4 Banks and Miners were all up which is little surprise when the XJO is up for the week.

The ranks followed market capitalization except for the Mid-Caps that were oteably lower than the rest of the market. Between the Top Fifty and Mid-caps was a margin of 2.5%. This week the Small and Mid-Caps have considerably out-performed the rest of the market this week. This drop appears to be from Tatts Group (TTS) announcement to market on Wednesday.

Market Darlings:

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