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