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Review of S&P/ASX Index Charts: XSJ, XFJ, XPJ, XDJ, XMJ & XNJ

July 26th, 2013 · Greg Atkinson · 6 Comments

As the Australian stock market continues to essentially drift sideways perhaps now is a good time to step away from looking at individual stocks and look at which sectors have been moving the wider S&P/ASX 200 (XJO) Index. To do this I am going to focus on six S&P/ASX 200 sector indices namely the S&P/ASX 200 Consumer Staples (XSJ), S&P/ASX 200 Financials (XFJ), S&P/ASX 200 A-REIT (XPJ), S&P/ASX 200 Consumer Discretionary (XDJ), S&P/ASX 200 Materials (XMJ) and S&P/ASX 200 Industrials (XNJ).

In each case, I will use a two year chart for each Index plotted against the performance of the S&P/ASX 200 Index. The aim of the exercise is to simply show which sectors have been pulling the ASX 200 up and which have been acting as a bit of a drag over the last 2 years.

First up – the S&P/ASX 200 Consumer Staples Index which covers businesses that are less sensitive to economic cycles including manufacturers and distributors of food.

S&P/ASX 200 Consumper Staples Index (XSJ) 2 year chart

asx200_cons_staples_vs_xjo_july2013

Clearly this sector has been supporting the ASX 200 and over the last year has performed quite well. I don’t see this as indicating that companies in this sector are doing particularly well just that they have rallied from being oversold with interest rate cuts also helping to give these companies a boost.  Stocks in this sector are often defensive by nature and we may see this sector resume moving sideways for the rest of the year.

Another sector which has bounced back strongly has been the financials as we can see from the chart below.

S&P/ASX 200 Financials Index (XFJ) 2 year chart

asx200_financials_vs_xjo_july2013

Again I see the movement in the sector being related to coming from an oversold position and my guess would be further major gains are unlikely this year in this Index.

S&P/ASX 200 A-REIT Index (XPJ) 2 year chart

asx200_areit_vs_xjo_july2013

Another good performer has been the A-REIT`s (Australian Real Estate Investment Trusts) and many stocks in this sector also pay good yields, so over the last two years this has been a good place to be.  This Index has been on the rise for two years and I believe this is more about shaking off the fear around this sector caused by the GFC rather than simply coming from just being oversold like the other sectors were around a year ago.

Now for an Index which is often a bit more lively.

S&P/ASX 200 Consumer Discretionary (XDJ) 2 year chart

asx200_cons_disc_vs_xjo_july2013

The S&P/ASX 200 Consumer Discretionary Index covers stocks which are more sensitive to the fortunes of the wider economy. These include household durable goods, textiles, leisure equipment plus services such as hotels, restaurants and consumer retailing.

Basically when times are good people tend to spend more on things other than the basics but when the economy slows, this sector can be hit hard. This Index wasn’t really doing much until December last year and I put down much of the rise in the XDJ to interest rate cuts. This Index may get another lift if the RBA cuts rates again, but it looks like it is running out of steam to me as far as its current rally goes.

This is a good Index for investors to watch as it will probably roll over fairly quickly if consumers start to worry more about the economy and also as the impact of the interest rates cuts begin to wear off.

Now for some sectors that have not done so well.

S&P/ASX 200 Materials Index (XMJ) 2 year chart

asx200_materials_vs_xjo_july2013

The S&P/ASX 200 Materials Index (XMJ) covers range of commodity-related manufacturing industries and has been hit by the high Australian dollar over the last few years plus a general malaise which seems to have gripped the manufacturing and industrial sector across Australia.Added to this the end of the mining boom and the expected decrease in mining related CAPEX have given many stocks in this area quite a battering.

This is certainly one sector which is keeping the wider S&P/ASX 200 (XJO) in check and I reckon it will continue to act as a drag on the XJO for the rest of the year at least.

S&P/ASX 200 Industrials Index (XNJ) 2 year chart

asx200_industrials_vs_xjo_july2013

Finally the S&P/ASX 200 Industrials Index (XNJ) which surprisingly has held up fairly well, however this sector is going to struggle over the second half of the year I believe unless of course the Chinese unleash another round of stimulus spending which will in turn lift all sectors.

In conclusion, my impression after looking at these charts is we are set to see the Australian stock market drift sideways over the second half of 2013 or even drift backwards a touch. Of course developments in the U.S, China, Japan and Europe will give our market a push or pull  from time to time, but it’s still hard to see at this stage what would drive the market much higher from the current level.

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


6 responses so far ↓

  • 1 Greg Atkinson // Aug 6, 2013 at 8:14 am

    Maybe stocks will get a short boost upwards after the federal election?

  • 2 Lachlan // Aug 15, 2013 at 3:18 pm

    I don’t know what to think about stocks Greg. I am not sure anybody can know what money flows will or will not push into the favoured classes at present. Gold miners still look sad for now.

  • 3 Greg Atkinson // Aug 16, 2013 at 9:15 am

    Lachlan I reckon we will see U.S. stocks fall (by more than 10%) once the tapering starts but the question is when will this happen? In any case the Australian stock market appears due for a pull-back as has happened whenever it has pushed above 5000 over the last few years.

    As for gold miners – well as I posted a while back I picked up a small holding in Newcrest Mining (NCM) when they were just under $10 a share. I am hoping at that price I am relatively safe.

    But generally I agree with you, the gold miners look pretty sad.

  • 4 Stillgotshoeson // Aug 16, 2013 at 9:30 am

    We won’t see tapering in September.

    The market is telling the Fed, “don’t turn off the tap” Retail figures were not that good with Macy’s and Wal-Mart and others underperforming expectations…

    The Fed will say they are looking for more signs of strength in the economy and the current $85B a month will remain for the time being.

  • 5 Gregory Kouroulis // Sep 24, 2013 at 1:43 pm

    Hi Greg

    Your analysis on the various ASX indexes have been a very interesting read and is quite similar to a research project that I am currently working on for my Bachelor’s degree in Economics and Finance. My project however, is more inclined to the analysis of Base Metals and how their performances reflect the various ASX indices. My aim is to see if I can predict the movement of these indexes based on the market returns from the various base metals that are traded in the exchange. Logically speaking, there is no possible way to exactly predict the market based on these commodities as there are endless factors that determine the performance of the market, but I do hope to gain a quantitative measure of how much these metals affect Australian market and determine whether there is an asymmetrical measure in positive returns and negative returns.

    It is reasonable to assume that the materials sector is definitely the major contributor to dragging the ASX 200 as there have been negative returns in these metals as well as less demand in infrastructure from our Asian neighbours. I believe however, that the correlation between the performance of metals and these indexes is strong even for the non-related indexes like consumer staples and financials. Maybe my analysis might prove that the direction in base metal pricing will reflect the direction of index pricing and thus allowing future forecasts to be just that little more accurate.

    Also with the new body of government and Chinese economic slowdown lessening it seems that the demand for commodities will steadily rise again and thus allowing the performance of the ASX to continue steady growth.

    I would greatly appreciate any feedback and your perspective on base metal performances. This is my link to my blog on my research: http://ghkouroulis.wordpress.com/

  • 6 Greg Atkinson // Sep 26, 2013 at 9:55 am

    Thank you Gregory, I’m glad you find the analysis interesting. Your research into base metals prices looks very interesting but as you know, the problem in this area is the distortion caused by speculation and stock-piling amongst other things.

    I don’t think there is any one index that gives us a clear insight into how the markets may move. Personally I watch a few including the Baltic Dry Index (which is linked to commodities demand), AMEX Oil & Gas Index plus of course the All Ords, ASX 200 and the ones I mentioned in the above post. I also keep an eye on the gold price which I consider a “investor fear” detector.

    Having said all that base metal prices are greatly influenced by what is happening with the Chinese economy which in turn has a major impact on how the All Ords/ASX 200 fare. So I’m quite interested in your research and if you ever want to post an article on this site please let me know.

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