Research Monitor - December Quarter 2016 Research13 Oct 2016

The Australian Share Market, as measured by the S&P/ASX300 Index, rose by 4.0% on a price basis and 5.2% on an accumulation basis during the September Quarter.

 

After a very strong July, where optimism about “reporting season” saw the S&P/ASX300 accumulation index rise by 6.36%, markets have remained choppy and directionless, posting a small loss in August and a small gain in September.

 

There was some sector rotation during the September quarter which saw most “bond sensitive” sectors perform poorly, and most “cyclical” sectors perform well. The banking sector performed in line with the index, with many stocks trading “ex-dividend” at the start of the quarter and posting modest gains throughout. Index bellwether CBA was weaker, however, falling 1.4%. Retailing, led by Harvey Norman (HVN) was the best performing sector as most companies reported better than expected profit results in a sign that consumer confidence is slowly returning. HVN was up over 16% leading the retailing index 16% higher. Materials were also strong (again) in line with their historical pattern of recovery. BHP up 22.3% for the quarter led the index 13.9% higher.

 

Other sectors to do well include Food and Staples Retailing and Food Beverage and Tobacco (lead higher by Treasury Wine Estates up 20.1%). The more defensive sectors did poorly. Telecommunications Services was down 6.4% in accumulation terms thanks to Telstra (TLS) falling 5.5%. Media, Pharmaceuticals, Insurance, Utilities and Real Estate sectors all posted losses for the month – highlighting the switch from interest rate sensitive sectors to those exposed to a pickup in inflation (retailing) and growth (materials).

 

The Energy sector lagged the overall recovery in the Materials sector, due to the price of oil being flat over the quarter but only after falling steeply in July, where it was down 14.3%. The largest energy stock, Woodside Petroleum (WPL) was actually up 9.7%, but the sector as a whole rose only 2.7% in accumulation terms. Gold stocks were also slightly weaker, despite the price of gold holding up during the quarter.

 

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