• Christopher Hall

Monthly Summary - August


Economy and Indices

Global markets fell over the last month.

Most commentators say the major factor are the ongoing trade wars between the US and China.

There are other flow-on factors that become growing concerns the longer the trade wars go on:

  • Trade war resulting in currency war

  • where countries intentionally influence the exchange rate of their currency

  • Continued slowing Chinese growth rates

  • Even lower growth expectations world-wide

  • Interest rates expected to fall further

  • these days, lower interest rates are having less impact on helping spur markets along

  • Low wages growth, despite tight labour markets

Beyond these economic factors, the net result to the person on the street, or ‘Main Street’, boils down to:

  • Companies being unsure of their future,

  • In turn, companies being less willing to put on that extra staff member, buy that extra piece of equipment or open a new shop

  • Companies are spending less money and hiring fewer workers

  • Workers are less confident of keeping their jobs, so they spend less

  • All of these hesitations compound across the country and flow through to shrinking global growth

  • Lower growth weighs on company share prices and share markets

  • Lower sales, lower share prices, lower growth = lower confidence

  • Less confidence repeats the above process in a downward spiral and then we have a recession on our hands

Recession are not fun for most people and are terrible for most portfolios. The key to being invested in recessions is to have the portfolio invested in the right areas.

Leading Sectors This Month

  1. Health Care +5.6%

  2. Information Technology +0.9%

  3. Consumer Staples (Grocers) +0.7%

Lagging Sectors this month

  1. Metals and Mining -9.8%

  2. Energy – 6.3%

  3. Utilities – 4.8%

Health Care companies have been powered higher by strong results from CSL (CSL), Sonic Health Care (SHL) and Resmend (RMD). Smaller companies Nonosonics (NAN)and Pro Medicus (PME) have also had much stronger runs, but have had less impact on the Health Care index.

Materials continue to feel the drop in the iron ore price of the last few moths plus gold miners have come off their recent highs.

Australian Market Segments this Month

The smallest companies or Emerging companies, have performed exceptionally well this month compared to the rest of the market.

Emerging companies are flat for the month, whereas Small caps are down -5.1% and Bluechips down -4.3%, similar to the overall market, also down – 4.3%.

In the market drop over last few months of 2018 the smallest companies were hit the hardest, they also recovered the slowest until July this year.

Since July, the Emerging companies have come from last to first place, up + 14% compared to the market which was down -0.2%.

Market Trends and Leaders

The top thematic in the Australia market after the August 2019 reporting season are:

  • International earners: With the AUD down -13% against the USD, even a weak company can boost their earnings if they earn in USD. The better companies are CSL and the like, with most of their operations offshore.

  • Property and Bond Proxies: lower interest rates still keep the demand high, plus a potential soft bottom on the property market has helped.

  • Health Care: namely hospital suppliers and diagnostic equipment

  • Engineering and Mining Services: have prospered from a strong mining sector and large infrastructure spending along with low interest rates

  • Software providers and online retailers: very few industries promise returns where the sky is the limit, although software companies are highly scalable. For the companies that are continually exceeding their profit forecasts, investors have bought up their shares and paid increasingly higher prices for them

Podcasts:

We regularly interview industry exports on numerous topics available in the Podcast playlist here.

  1. CSL deconstruction with Rudi Filapek-Vandyck

  2. Unpacking AMP’s first half result

  3. Market Pivot to a minor Rally

  4. Short Sellers cause a market scramble

  5. Quality vs Value Stocks


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