The last month or so has been quite a ride for Australian stock market investors with the ASX All Ordinaries Index falling from around 4500 points to around 4000 points. The continuing economic woes in Europe, the economic slowdown in China and the stagnant U.S economy have worked to drag the share market down as have signs that the Australian domestic economy is showing signs of weakness.
However the big picture view is that the Australian stock market has been struggling for a year or more and that the correction in May was just one in a series of corrections we have seen over the last twelve months.
If we look at the chart of the ASX All Ords below we can see that despite the sometimes hysterical headlines in the mainstream media, the Australian stock market has actually be trading in a fairly narrow range since August last year.
ASX All Ordinaries Index (XAO) 1 year chart
At the beginning of August 2011 the ASX All Ords was trading around 4400 and as of yesterday it was trading around 4200. It has dipped below 4000 points and rallied near 4500 points, but it’s hardly been a nail biting roller-coaster ride.
However that won’t stop headlines like “stock market bloodbath” and variations thereof being churned out by lazy news editors and finance reporters.
On the 12 month chart of the All Ords above I have drawn a very simple trend-line but I wouldn’t read too much into this at this stage. The market is basically direction-less and is likely to drift up and down without any real conviction for some time yet.
I have also drawn some support lines at 4000 & 4100 points just to show how these levels have acted as a trading bottom for the last year.
Now let’s have a look at some charts of ASX listed stocks covering the last 12 months.
AGL Energy (AGK) 1 year stock price chart
AGL Energy (AGK) is one stock that is trading higher now than it was 12 months ago but there is so much going on with power asset sales, the carbon tax and renewable energy projects that makes it difficult to say that the stock price is on a longer term trend upwards.
AGK is a defensive type stock and I would expect it will trade in a fairly narrow range over the next 12 months.
David Jones Limited (DJS) 1 year stock price chart
I don’t really need to say much about this chart except to mention that the share price of David Jones Limited (DJS) is basically reflecting how most retailers are doing in Australia i.e. not very well. Consumer confidence is low and is likely to remain that way for all or most of 2012.
It’s hard to think of a reason why the DJS share price will rally this year but it could be worth looking at for investors with a longer term share market investment strategy.
Woodside Petroleum Limited (WPL) 1 year stock price chart
Oil and gas prices (like many commodities & resources prices) have been weakening for some time so that would largely explain the fall over the last 12 months in the share price of Woodside Petroleum (WPL).
My outlook for commodities & resources prices for the next 12 months is that they will continue to be under pressure but having said that, WPL is worth keeping an eye on if you believe that the global economy will start finding its mojo again in 2013.
National Australia Bank (NAB) 1 year stock price chart
I have included a chart of one of the big four banks since banking stocks have been fairly volatile at times since the global financial crisis struck back in 2008.
Over the last 12 months the National Australia Bank (NAB) share prices has moved in some fairly big swings at times. For example there was approximately a 20% movement from a low in August 2011 of around $21 to a high of nearly $26 in late October 2011.
My personal view (and this is not financial advice) is that the outlook for the bank stocks is so unclear that it makes me reluctant to buy shares in any bank. However I am holding onto the shares I already own in banks simply for the fully franked dividends.
Finally let’s have a look at a company whose stock price is heavily influenced by mining, infrastructure and construction project activity – Leighton Holdings (ASX:LEI)
Leighton Holdings (LEI) 1 year stock price chart
Shares in Leighton Holdings started 2012 off well and probably got a boost due to the running commentary in the media of a mining investment boom in Australia.
However the reality of fragile global economy and the rumblings from many large mining companies that projects may be put on hold have dragged this stock down from around $26 to around $17 a share in 3 months. That’s a drop of over 30%…ouch.
Since I believe that the Chinese economy will cool further this year and that the commodities cycle has peaked; shares in LEI even at current prices don’t look that attractive to me. However it is a stock worth having on a watch-list.
In summary I don’t expect the Australian share market to do much over the next month or so. It’s likely to simply just drift up and down as it follows the major markets in Europe, Asia & the U.S. but there could be some bargains out there so we need to keep our eyes open.
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