In the midst of all this market madness it might be useful for investors to sit back and look at what various sectors of the Australian stock market have being doing over the last ten years to see if we can spot any emerging trends. We all know for example that the resources sector has been generally kind to investors over the last few years but will it continue to be a strong performer in the years ahead?
Normally when I write about the stock market over the long term I use charts of the ASX All Ordinaries (XAO) and S&P/ASX 200 (XJO) Indices. Today I am going to dig a little deeper and look at some of the sector Indices to see what they might be telling us.
Let’s start by looking at the Industrials sector.
S&P/ASX 200 Industrials Index (XNJ) 10 Year Chart
The S&P/ASX 200 Industrials Index (XNJ) includes listed companies involved in the manufacture and distribution of capital goods or the provision of transportation and commercial services for example.
The chart above suggests that this sector has not done much except bounce off the low of early 2009. More worrying is that it has been essentially drifting downwards for most of 2011 and it doesn’t look like it is poised to rally strongly this year.
Next we can look at an Index which may indicate how freely consumers have been spending.
S&P/ASX 200 Consumer Discretionary Index (XDJ) 10 Year Chart
According to the ASX website: ‘The S&P/ASX 200 Consumer Discretionary Index (XDJ) encompasses those industries that tend to be the most sensitive to economic cycles. Its manufacturing segment includes automotive, household durable goods, textiles and apparel and leisure equipment. The services segment includes hotels, restaurants and other leisure facilities, media production and services, and consumer retailing and services.’
Again this chart suggests that this sector really has not done much except bounce off a post Lehman Brothers low. What is more worrying is that over recent months the Consumer Discretionary Index has slumped and it also appears to be indicate that consumers have been less inclined for quite some time, to spend freely.
The consensus view might be that the Australian economy sailed though the Global Financial Crisis (GFC) in good shape, but so far it’s hard to see much evidence of that by looking at the charts.
But there is of course one sector which has shined: Materials.
S&P/ASX 200 Materials Index (XMJ) 10 Year Chart
The S&P/ASX 200 Materials Index is made up of a wide variety of commodity related industries and rallied pretty strongly from early 2009 until early in 2011 as well as enjoying a long rally between 2003-2008 before that.
What worries me is that this sector appears to be losing steam and this could be indicating that the commodities cycle is turning downwards. If commodities prices were to enter an extended period of decline then it’s almost a certainty that the Australian economy would slide into a recession.
Next let me display a chart of a sector that has had a horror run and continues to have a horror run: Australian Real Estate Investment Trusts or A-REIT’s.
S&P/ASX 200 A-REIT Index (XPJ) 10 Year Chart
You will not find too many stock market Index charts that look as sick as the one above. The S&P/ASX 200 A-REIT Index collapsed as a result of the GFC and quite frankly doesn’t look in good shape even today. Simply put, A-REIT’s are struggling and I doubt they will recover lost ground for many years.
We have to be wary of reading too much into charts, but what appears fairly clear to me is that if you break the Australian stock market into sectors then widespread weakness is evident across a number of Indices. It isn’t just the high Australian dollar creating this weakness, but instead a broad range of geo-political issues are at play and these are likely to keep the Australian stock market subdued for quite some time.
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