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A decade in review: the ASX All Ords, BHP, HVN, RIO, WOW & more.

August 29th, 2011 · Greg Atkinson · 8 Comments

Often it is useful to step away from looking at the daily movements of the stock market and review what has happened over the last decade.  This won’t exactly tell investors which stocks will do well during the next 10 years, but it does show which trends have moved the market to where it is now.

Firstly let’s look at two consumer related stocks which have much in common but also have a very important difference.

Woolworths Limited (ASX:WOW) 10 Year Stock Price Chart

wow-10-year-stock-price-chart-aug-11

Harvey Norman Holdings (ASX:HVN) 10 Year Stock Price Chart

hvn-10-year-stock-price-chart-aug-11

Like so many Australian stocks, Woolworths (ASX:WOW) and Harvey Norman (ASX:HVN) both saw their shares peak in late 2007.  They also both enjoyed the ride up with Woolworths starting a long rally from around mid 2004 whereas Harvey Norman started its run upwards in earnest from early 2005.

Both companies depend on healthy domestic retails sales to help them grow but the big difference is that Harvey Norman has operations overseas, notably in Europe.

Whereas Woolworths took a hit when the market slumped in 2008 and then basically held on, Harvey Norman stocks have been buffeted by offshore factors as well.  If you had invested in WOW 1o years ago you would be sitting on a tidy capital gain however with HVN you would you be looking at a loss with it’s share price now around the lowest level it has been in 10 years.  Ouch!

Now let’s have a look at a mining stock and gold prices.  As usual I will use the Exchange Traded Fund GOLD to track gold prices.

Rio Tinto Limited (ASX:RIO) 10 Year Stock Price Chart

rio-10-year-stock-price-chart-aug-11

Rio Tinto (ASX:RIO) is a good stock to look at as it seems to amplify the ups and downs of the commodities boom. The chart shows how its stock price rallied strongly from 2004 until it came crashing down in 2008.  Since then it has recovered but only back to around 2006 levels.

ETF GOLD (ASX:GOLD) 10 Year Price Chart

gold-10-year-stock-price-chart-aug-11

ETF GOLD on the other hand has been on the way up since 2005 and has basically kept rising ever since.  So it looks like money in the ETF GOLD would have been a better bet than being in RIO stocks over the last decade right? Well yes, but it’s a close call as we will see later.

ASX All Ordinaries, AMEX Oil & Gas Index 10 Year Chart

xao-xoi-10-year-chart-aug-11

Moving a little off topic I just wanted to toss this chart in as the relationship between ASX All Ords (XAO) and the AMEX Oil & Gas Index (XOI) is interesting.  It shows how resource dependant our stock market is and it’s hard to see this relationship changing any time soon.

In others words the fortunes of the Australian stock market are linked to the fortunes of the resources and energy sector.  Yes the domestic economy exerts an influence on the market, but it’s really the resources sector that is setting the pace.

Now for the grand finale.

ASX All Ords, RIO, BHP & GOLD 10 Year Chart

xao-rio-bhp-gold-10-year-chart-aug-11

In this chart I have pulled together a few resources stocks, ETF GOLD and charted them against the ASX All Ordinaries over the last decade.

Firstly you can see that ETF GOLD has only just recently pipped RIO Shares in terms of performance over the last decade and that’s due to the sudden surge in gold prices over the last month or so.

But the BHP Billiton stock price has outperformed GOLD by a long, long way.  It makes you wonder why the financial media is obsessed with gold prices in USD when the real star of the show has been BHP shares in AUD.

The real laggard is the ASX All Ords which when charted against RIO, BHP and GOLD looks a little sickly in terms of how it has tracked over the last 10 years.

So what do all these charts suggest? Firstly that the run up in stock prices from 2004/2005 was probably a once in a decade or two rally and we are unlikely to see a rally like that for many years.

Secondly our stock market is now almost a commodities price index by default.  It’s hard to see how the domestic economy alone would drive a strong stock market rally in Australia.  If the commodities sector is not firing on all cylinders then I doubt the power of consumer spending is going to do much to lift the market.

This suggests to me that for the decade ahead I am going to have to adjust my investing strategy to the new reality. But more on that later.

Greg Atkinson is the editor of Shareswatch Australia and the Managing Director of Ohori Capital He is originally from Australia but currently resides in Japan. He can be followed on twitter via @GregAtkinson_jp


8 responses so far ↓

  • 1 Mr Editor // Aug 29, 2011 at 10:39 pm

    Excellent post, Greg. I especially like how you’re going to adjust your investment strategy due to this “new reality” — perhaps I’ll do the same thing too.

    On a side note, which program do you use for your charts?

  • 2 Ken Dorge // Aug 30, 2011 at 6:04 am

    so, the many comments on how we can excel and how we need support and how gvoernments are obstructing progress overlook this reality. mining destroyed governement recently. the super profits mining makes for shareholders, if at the expense of government for the people, was not in australia’s best interests. the recent treasury speech on their methodology was favourably commented by Ross Gittins for its wider community well being focus.

  • 3 Greg Atkinson // Aug 30, 2011 at 8:58 am

    Mr. Ed I have been waiting for the dust to settle before I thought about any long term changes. As for the charts, drop me an e-mail and I can tell you some of the sources I use.

  • 4 zoe // Aug 31, 2011 at 9:25 pm

    Could you please tell me about the impact of Australian stock market on the ability of Australian Companies to raise Equity Capital???

  • 5 Greg Atkinson // Sep 1, 2011 at 6:22 pm

    Zoe, very generally speaking a bull market would be a better time for companies to raise equity. But it’s a lot more complicated than than. For example if a company is willing to offer new shares at a bargain price then even in a bear market they will probably be able to raise the funds they need.

    This is not really something I am well versed in so hopefully one of our readers will say something šŸ™‚

  • 6 Leigh // Sep 4, 2011 at 4:53 pm

    Greg,
    I get almost as fascinated by charts as I do about maps and so I appreciate your work. However, I wonder if we should also be considering the return from dividend along with the share price rise and fall. Telstra has been an awful story as far as stock value but their dividends (so far) have made them worth staying with. If you look at gold miners like Newcrest the price is good but the dividend is point 9% while CBA is still about $20 below its best, their dividends are strong. I have been working through my portfolio adding up the dividends to see how they offset the general loss in the equity value and generally the big four banks still come out on top. I understand that many of you just want buy and sell shares, but surely none of you would buy an investment property without considering the rental potential.
    regards
    Leigh

  • 7 Greg Atkinson // Sep 4, 2011 at 7:39 pm

    Leigh you are absolutely correct when say the charts don’t tell the full story. I have mentioned before the importance of dividends but it’s true that I don’t factor them in when I ramble on about the charts. The same goes for say the ASX All Ords versus the ETF GOLD. A bar of gold under your bed or units in EFT Gold pay you nothing whereas if you own a bag of stocks the chances are you are getting dividends which may also include some nice franking credits.

    I will try and write something about this soon. Thanks for the tip!

  • 8 Biker // Sep 5, 2011 at 1:39 am

    Leigh: “…none of you would buy an investment property without considering the rental potential…”

    Completely agree, Leigh. I’ve often presented that fortnightly rent cheque as ‘the dividend’ which insulates owners when values plateau. The same certainly applies to many stocks…

    I’m reading an outstanding, as-yet unreleased book by Sylvia Nasar*, ‘Grand Pursuit’, which is filling in the gaps for me. Unlike a few here, my Economics studies didn’t progress any further than Year Twelve. I’m getting the big picture stuff slowly and much of what is happening globally is starting to make real sense.

    Interestingly, nearly all the economic geniuses who have contributed to economic theory, since Economics first became a science, have taken major hits when crises occurred, despite their expertise. When it’s eventually released this month in North America, I’d expect the book to be required reading, at undergraduate level at least. Impossible to read without a pencil for margin notes… and a highlighter…

    * Author of ‘A Beautiful Mind’. My copy of GP is an Advance Reader’s Edition, unproofed. (Not an ‘Advanced’ Reader’s Edition, I might add… . šŸ™‚ )

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