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ASX 200 July Review: Gold, Consumer Shares Outperform while Financial, Energy Shares Lag Behind

ASX 200 July Review: Gold, Consumer Shares Outperform while Financial, Energy Shares Lag Behind
The rally was broad based as all sectors advanced, however particularly gold producers, consumer discretionary, staples and materials shares performed strongly
Aug 04, 2016 By Simon Herrmann Tags: stocks, ASX, Analysis, Sector Review, ASX Review

The ASX staged a strong recovery in July and is now trading close to a one year high. While the overall direction of the market is a good indicator of current sentiment - unless you are holding an index ETF - the performance of your portfolio is driven by the companies you have invested in. However, in order to make educated investment decisions it is important to understand which sectors outperform and which ones underperform. Keep in mind though that past performance is not necessarily a reliable indicator for future performance, but rather just one of the many indicators you should pay attention to.

ASX in July: Stocks Gain in Broad Based Rally

July has been a strong month for equities as Australian stocks gained 6.3% for the month.


Index

Return July

ASX 200

+6.3%

All Ordinaries

+6.3%

Small Ordinaries

+8.5%

 

The S&P/ASX 200 Index (XJO) is recognised as the investable benchmark for the Australian equity market. The index essentially covers the large and mid-cap stocks, however the top 10 companis have the strong impact on the direction of the index. Australian blue-chip stocks advanced for the month, which helped push the index higher. The All Ordinaries Index (XAO) represents the 500 largest companies listed on the ASX, while the Small Ordinaries index (XSO) covers the 300 largest companies, but excludes the top 100 companies, making it one of the leading benchmarks for mid-caps.

ASX 200 Sector Breakdown July

The table below shows that the rally was broad based as all sectors advanced, however particularly gold producers, consumer discretionary, staples and materials shares performed strongly. Energy was the least favourable industry as crude oil prices tumbled during the month.

Wesfarmers (ASX:WES) and Woolworths (ASX:WOW) are the two largest Consumer Staples companies by market capitalisation. Both stocks gained during the month, which helped an underperforming sector to recover some of the losses incurred earlier in the year.

 

Sector

Return July

Gold

+11.6%

Consumer Discretion

+8.9%

Consumer Staples

+8.5%

Materials

+7.8%

Industrials

+6.9%

Health Care

+6.8%

Utilities

+6.6%

Financials

+5.9%

Telecommunications

+4.2%

Information Technology

+3.0%

Energy

+0.2%

 

ASX in 2016: Gold & Resource Stocks Trump Financials

Since the beginning of the year (1 January - 31 July 2016) the S&P/ASX 200 gained 5%, while the broader All Ordinaries Index advanced 5.6%. The Small Ordinaries Index surged 14.1% during the same period. The table below compares the performance amongst the different sectors. We have included the All Ordinaries Gold Index.

 

Sector

Return Jan-Aug

Gold

+102.5%

Materials

+23.1%

Utilities

+16.3%

Health Care

+14.9%

Industrials

+14.7%

Consumer Discretion

+12.8%

Telecommunications

+5.3%

Energy

+2.8%

Consumer Staples

+0.7%

Information Technology

-2.6%

Financials

-2.7%

 

The data shows that the best performing sub-index has been the All Ordinaries Gold Index, while Financials, Information Technology, Staples and also Energy lagged behind. Earlier in the year Wise-owl recommended a number of companies with exposure to the gold sector, as we anticipated this trend early in the cycle.

The primary driver for gold stocks has been the surge in gold prices, which creates a more favourable environment for gold producers and lifts the value of gold-related assets. Bearish sentiment for gold persisted for quite some time and the latest price appreciation has put gold back in the spotlight. The spike in prices was triggered by a number of factors which include but are not limited to:

  • Stock market volatility earlier in the year – investors traditionally believe that gold offers safety when markets are volatility
  • Fears about China, emerging economies, Brexit, global growth and rising debt levels
  • USD weakness since the beginning of the year: The Fed is raising rates slowly and gradual and economic data was mixed, which halted the rally of the USD
  • Gold prices hit a 6-year low at the end of last year


Resource stocks have outperformed on the back of rising commodity prices. The Reserve Bank of Australia (RBA) summarises the situation as follows: “Commodity prices are above recent lows, but this follows very substantial declines over the past couple of years.” While investors with signifcant exposure to the resource sector may have not recovered all of the losses of the past few years (BHP, RIO still trade well below historical highs), but the latest recovery is refreshing for a beaten-down sector.

The Utilities sector is traditionally believed to be a defensive yield sector, which investors seem to appreciate in a low-interest rate environment. The sector as a whole has gained over 16% since the beginning of the year.

If you want to find out more on how to take advantage of industry related dynamics, speak to the analysts at Wise-owl or sign up for a free-trial for more in-depth research.

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Simon Herrmann Author: Simon Herrmann Aug 04, 2016

Simon is a financial analyst at independent research firm Wise-owl who wants to change the world by disrupting the cliché approach to investment decision making with convergent thinking. Wise-owl’s goal is plain and simple: Find the best opportunities for our members by following a proven methodology and to create long-term value through high-quality advice, innovation, technology and education. We combine industry experience and the agile mentality of a start-up. Wise-owl is the future of stock market investing.

ASX & IPO Review for Q1 2017

The first three months of 2017 were characterised by low volatility and overall bullish sentiment. After a 4.2% gain during the fourth quarter of 2016, favourable market conditions on the ASX were sustained during the first quarter of 2017.

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