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The ASX 200 – A Longer Term Perspective

November 19th, 2015 · Greg Atkinson · 23 Comments

As I have written before, it’s important during a stock market correction not to get influenced by sensational articles in the news media about market crashes and comparisons to past market slumps going all the way back to the 1920’s which are after all, basically irrelevant. The only thing that really concerns investors now is what will happen to the Australia stock market going forward, and the most likely outcome is that over the longer term it will trend upwards.

Now I appreciate that in the midst of a market slump that plenty of people will refer to a certain stocks that has crashed xx% or point out that the ASX 200 is down almost a 800 points from the 2015 high. But the fact remains that since 1988 the Australian stock market has edged upwards and that generally speaking the return including dividends, has been around 10% (plus or minus a few %) annually.

Australian S&P/ASX 200 Index Chart: 1988 – 2015

ASX 200 Index Chart 1988 - 2015 (Nov 2015)

During market corrections the charts usually doing the rounds are the ones that show the trend downwards and these are often focused on a period of months, not years.  Yes these charts are interesting and show us what has happened and we may be able to use them to estimate an emerging trend, but it’s more important in my view to step back and also look at the long term trends.

Looking at the long term chart of the ASX 200 above we can see that the current market pull-back is not even close to being as severe as the one during the GFC in 2007-2008 and in the overall scheme of things, it’s just another correction. Without too much effort we can spot a fall of around 500 points in 2010, a fall of around 100o points in 2011 and corrections to varying degrees in every year since.

Of course the shorter term view of the ASX 200 is a bit more sobering and so far 2015 has not been a good year. Maybe the ASX 200 will edge back up towards 6000 again, but if it finishes above where it started the year then that would be a good outcome.

Australian S&P/ASX 200 Index 1 Year Chart

ASX 200 Index 1 Year Chart (Nov 2015)

Along with every correction many who were talking up the market (and this year some were about the break out the “6000 points” champagne) quickly switch to being ultra-bears. They may call what they write “analysis” – but in reality it’s just content for which the mainstream finance media has an insatiable appetite for.

At the moment the ASX 200 is down around 800 points from the earlier high this year and has been down around 1000 points. For sure it’s a nasty fall, but taking into account the slowdown in the Chinese economy did we expect anything different? For me the only real surprise is how far a stock like BHP Billiton (ASX:BHP) has fallen but some of this is due to a one-off event (i.e. the dam failure in Brazil).

Having said that, I’m still positive over the long term regarding BHP shares but it’s probably going to take a few years before my contrarian view will yield good results. For now however, BHP is a classic example of what happens when a blue chip stock falls out of favour with investors, analysts and the media.

BHP Billiton  10 Year Stock Price Chart

BHP Billiton 10 Year Chart (Nov 2015)

Basically the entire mining boom phase has been priced out of BHP stock price. This price correction is probably a touch over-done now in my opinion, but at this stage BHP is a risky buy at best and certainly there’s been a lot of action on the sell side recently.

On the other hand a stock like the Commonwealth Bank (ASX:CBA) has actually has a very good run since being sold-off heavily during the GFC as shown by the chart below.

Commonwealth Bank 10 Year Stock Price Chart

Commonwealth Bank 10 Year Chart (Nov 2015)

Recently CBA shares have also fallen back from the high they reached earlier this year so it’s not just the mining stocks that have been sold-off, although the ASX listed financial related stocks have generally speaking, held up better than stocks in the resources sector.

So it’s not all gloom and doom out there at the moment although in terms of stocks we are certainly in a rough patch. However from a long term perspective the overall upwards trend for the ASX 200 is still holding despite the recent correction.

Finally let me finish with a quote from one of the great investors- Peter Lynch:

“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”

Exactly.

This article was written by Greg Atkinson who is the Managing Director of Ohori Capital. Greg is from originally from Sydney but now works and resides in Japan. He can be followed on twitter via GregAtkinson_jp


23 responses so far ↓

  • 1 Greg Atkinson // Dec 1, 2015 at 9:06 am

    Looks like the ASX is trying to hold above 5200 but still no joy for BHP which is now below $20. Still it’s quite possible the ASX 200/All Ords will post a small gain by the end of 2015 if December is a good month for the markets.

  • 2 lachlan // Dec 7, 2015 at 6:23 am

    Interesting moves on the USDX (up) and PM prices hammered. XJO looking steady though neutral short term while Dow looks stronger.

  • 3 Greg Atkinson // Dec 7, 2015 at 10:28 am

    It all looks very messy lachlan. Hopefully the XJO has found it’s feet though and I reckon the big miners have been oversold.(but then again I was saying that when BHP was around $24 a share)

    Anyway as I was pointing out a few years ago, the Australian economy looked (and is) unbalanced and now that the resources sector has rolled over(and maybe housing soon as well?) there’s not much left to keep growth ticking over.

  • 4 lachlan // Dec 11, 2015 at 5:57 am

    Greg as far as I can tell everything points to a trend change event which cannot be too far off now…without elaborating because I ain’t that good. Looking at pms, commods (like you say BHP oversold…well it just has been for a good while) and currencies I cant see that the current trends can stay in motion for too much longer. Its prudent to note that things can and do drag out but then they already have for a good while. Then there’s the increasing cold war shenanigans which may be a part of the trend change scenery.

  • 5 lachlan // Dec 13, 2015 at 5:21 pm

    While our stock market looks like it “could” break through support easily the dj looks more like its warming up for another rally however people are so used to being long there for now and every doom and gloom event sees the market mysteriously levitating and the bears losing their shirts. Could we see a change in that pattern now, as in imminently? I don’t know however its a great time to watch the action.

  • 6 Greg Atkinson // Dec 14, 2015 at 8:54 am

    It certainly looks ugly today as far as the ASX 200 is concerned and the chances are it will finish in the red for 2015. This put us the Australian stock market on course to finish the year at around the same level as it did a decade or so ago. Ouch!

  • 7 lachlan // Dec 16, 2015 at 4:31 am

    Greg the Dow is very interesting now because it sits at a key resistance area and the USDX action sits amid what yet may turn out to be a breakout. And the Fed rates decision looms. Many people assume quickly that rate decisions will have certain immediate impacts however I am not so certain about much these days. As for the XJO, i don’t mind cheap prices 🙂

  • 8 Greg Atkinson // Dec 30, 2015 at 9:56 am

    For now I’m just sitting back and waiting to see how the markets finish the year. It looks like the ASX 200 will end basically where it started the year and the Dow will probably do much the same. The real action has been with commodities and I’m expecting them to come off their lows and post gains in 2016.

  • 9 lachlan // Dec 31, 2015 at 6:17 am

    Indexes seem to be drifting upwards while few are watching Greg. Commodities/commod stocks are and have been the place to buy into imo. They may have jiggled around all year but even if they keep doing so and even if they experience more downside it’s hard to deny that they’re cheap and look good for accumulation. I thought I may use super to access some blue chips (and cash) although I’m green on all that.

  • 10 Shaun // Jan 1, 2016 at 9:26 am

    Well, another year begins, and it is time to dust off the crystal ball again. My forecast for year end 2016 for the XJO is 6100. Giving myself some wriggle room, I’d say 5900 – 6300 range. What’s yours? All the best for 2016.

  • 11 Dean Cahill // Jan 3, 2016 at 5:08 am

    Really good post ! I really want to look deeper into the Australian index to give myself more alpha in my portfolio, instead of doing like every retail trader and focusing all their trading account on the US !

  • 12 Biker // Jan 7, 2016 at 2:37 pm

    As usual, I’m reluctant to make any real predictions at all, but having met with our tax and retirement specialists yesterday, I feel a little more confident about making some comments and suppositions.

    As usual, I’m reminded that generally, “…the more things change, the more they stay the same.” Yes, there are Black Swan events… and disruptive technologies may transform economies over time… but these may be a few years off yet. Given that (and our retirement accountant’s summary comments) I don’t think we’ll see much growth in the ASX at all this year. The only commodity which may disrupt this supposition (and I’m yet to be convinced it’s a good thing) is uranium… .

    Lachlan, we’ve studied the SMSF situation. My missus, still working(!) has just reviewed her options, but is in a fairly unique situation with an industry fund, which will allow her to salpack almost her entire wage annually until October 2017. Some time before that, she’ll pull around 1/3 of her Super across to a SMSF… with Vanguard… using a mix of markets which have worked well for our son (who will be a trustee). Why not earlier, while markets are falling? Her TTR arrangement is so productive at present, she’s reluctant to shift anything. Time will tell if that’s erring on the too-cautious side.

    Property? Rents are flat here in WA. Surprisingly, we still have strong rental demand in our two suburbs. Sales prices actually rose in some markets last year. We’d be a little surprised if that continued…

    Happy New Year to all!

  • 13 Greg Atkinson // Jan 12, 2016 at 8:16 am

    I will write a more detailed outlook for 2016 later but I don’t think we will see the ASX 200 hit 6000 this year. I’m not sure if this is a forecast or a wish but I’m thinking at this stage it might recover to 5600-5800 if the big mining stocks can stop falling.

  • 14 lachlan // Jan 13, 2016 at 8:04 pm

    Happy new year Shaun, Biker, Greg and Shoes and lurkers. Haven’t had time to write much lately. If the xjo persists hanging around just below 5000 then it may well take a dive by at least another 300 points. Likewise the AUD technically looks good for a trip to 66/67. In any event like Shaun I will predict a finish close to the 6000 mark which entails a rally later in the year. I’m not very confident in my predictions however. Things may even just stay volatile in bear land somewhere down here.
    Interesting BP what you said. Thanks for your thoughts. Will add more of mine later…cheers

  • 15 Biker // Jan 14, 2016 at 11:58 am

    Great to see your optimism, Lachlan and Shaun. Personally (and I’m an optimist) I can’t see the ASX anywhere near 6000 by year’s end. As a matter-of-fact, we’ve just taken a highly-defensive step, moving all funds from my wife’s most ‘active’ Super fund to _cash_.

    We’re not making that move because we think we’ll make money from it. (That would be a bonus, of course!) With so much income being committed to Super for the next twenty months, we simply hope to *preserve* it _all_. If it just keeps pace with inflation, we’ll be happy.

    But this move does signal some (minor) commitment to a position! Maybe our accountants’ views helped me to counsel this defensive position, but as a one-time soccer coach, I’ve always advocated defensive play when you’re really well ahead in the game… .

  • 16 lachlan // Jan 16, 2016 at 9:04 am

    Well as it turns out the XJO could not get going and has finished the week at 100 odd points below the 5000 level. So in keeping with my comments above I will be expecting the XJO and AUD to capitulate to new intermediate lows next week. Predictability was low with trading stuck in a shorter term range when Shaun brought the subject up some weeks back; however not so now with this breakout confirmed to the downside. Things could pull up short of this of course however they are the odds I’ll go with. Will be interesting to watch the reaction in AUD gold at the same time since it has pushed up to a short term decisive level at technical resistance. US monetary metals remain in an unchallenged intermediate bear market. I’d hazard a guess the AUD metals will move upwards this week.
    So that’s mine for next moves…XJO down, AUD down, AUD gold up.
    I had a look at the banks this week too. The pillar banks have had a fun time pulling back and testing support levels. It is possible for anyone to interpret this as whatever they want. You could say they are topping or you could say they are due for a relief move up soon or consolidating for another rally even. I am going to guess they will move up through the year and contribute to my predicted XJO recovery towards 6000ish. The Millionaire Factory did have a wild up move early last year which has consolidated recently and I’d guess it will move up towards it’s old highs from 2007 as big four recover ground later on also. So there you go Greg, banking stocks, a different topic for me. Oil stocks may be interesting this year at some stage too.

  • 17 Shaun // Jan 16, 2016 at 4:46 pm

    Yes, I have to say, I sound optimistic even to myself now!. However, my long term average calls for 6000, so if it does not get there this year, it’ll probably mean a steeper climb next year.
    Just as the XJO overshot in the commodities boom years, it is under performing now. However, it has always oscillated around the long term trend. So I’ll be patient and stick to my guns.

  • 18 Biker // Jan 16, 2016 at 5:15 pm

    Lachlan: “I’d guess it will move up towards its old highs from 2007…”

    By my calculation, we’re still off those highs by over 26%, Lachlan; and those highs were attained amidst our mining boom…albeit with the GFC looming.

    I admit I’m puzzled by a few recent phenomena:

    * Increasing employment figures. Is this a temporary lift? I believe it’s unlikely to last. (I’d _like_ it to last!)

    * Increasing new car sales, especially given the glut of second-hand vehicles on the market… .

    * Overseas travel claimed to be the highest priority of the younger generations. It may mean a very large percentage have given up the quest for a home. Travel has always been high on my list, but never my _first_ priority… .)

    I read the technical stuff with some interest, but have never personally witnessed any verifiable outcomes. The complexity of _human behaviour_ in share markets is probably far too complex for me, despite a few nice wins I now deduce were sheer bloody good luck!~!

  • 19 Stillgotshoeson // Jan 16, 2016 at 7:21 pm

    Happy New Year all.

    I’ll wait for the 2016 Predictions thread before I throw my two cents worth of opinions for the coming year.

    ASX looks like it is going to be a wild ride.

    Housing seems to be coming off the boil in Sydney and Melbourne, our largest property markets coupled with wage rates rising at a much lower rate could mean a blow to consumer confidence. We will see.

    I still maintain my call for the ASX to test new lows. Not thinking it will be this year. 2017/18 if at all.

    If we can get past 2018 without getting there then I’ll give up on that call. US figures for December were not that good. Europe is still struggling.

    Armed conflict is a flare up away. Trend is still deflationary at this point so DOW and by default ASX are likely to go lower. Low enough to see FED reverse course on rates and lower again and maybe QE4? Who knows.

    AUD Gold could have a good year Lachlan.

    The major miners have been hammered as I expected and our dollar is under pressure as I expected. Banks are holding up better than I thought they would but appear to under a little pressure now. Remains to be seen where they go from here. Consumer willingness to take on even more credit may wane with property not rising as much as has in the past and limited wage/salary rises.

  • 20 Biker // Jan 17, 2016 at 10:48 pm

    WAtoday (17/01/2016):

    “Macquarie Group, Citigroup and Credit Suisse are among the most bullish, forecasting the ASX200 will recover from the worst start to a year on record and reach 5900 to 6000, a 16 per cent rise.

    Morgan Stanley is tipping 4800, a 2 per cent drop from Friday’s two-and=a-half year low of 4892.”

    Quite a spread there… and, as we know… most economisseds get it wrong. 😉

  • 21 lachlan // Jan 18, 2016 at 5:42 am

    Biker, I’d add there is also incomplete information on the mechanics of markets…as many of us… and of course can’t forget, Mr keen, should have found out. There is no market science as I think you inferred… and it seems furthermore while putting aside the market participant and their human nature, the bystander cannot verify totally and with precision how modern finance works neither how precisely it is incorporated into the architecture of society. We have only crude and/or somewhat conflicting reports, pundits with various assumptions and some monetary dogmatists who have answers for everything. Nobody has measured the workings with rulers, producing then a total and coherent explanation which can be used to make valuable predictions any day of the week. However what would happen if we did know? Life would continue and necessarily the chaos involved with it. Ceaseless acts of creation and destruction even precede human agency as we know.
    I have little insight into the actual business activities of Maquarie Group. My feelings on their share price rests mostly on the basis of price action which in this case happens to be a 40% price spike over a few months in 2015, a tangible observation. The action since is some normal consolidation, no blow off yet. In regard to the price technical stuff, I hang on to this approach in a quite limited degree. I can observe simple trends, their precise nature and speculate for various reasons that they may have more or less substance.

  • 22 lachlan // Jan 18, 2016 at 5:46 am

    Iran set to sell crude now.
    http://www.bloomberg.com/news/articles/2016-01-17/iran-could-rake-in-five-times-more-from-oil-sales-by-year-end

  • 23 Biker // Jan 19, 2016 at 11:06 pm

    Thanks for your views, Lachlan. As I read it, there are (at least) two totally opposed economic theories… and politicians interpret them with an eye solely focussed on the windsock.

    It’s likely that ‘get-rich-quick’ theorists do get lucky at times… just as Lotto winners score against-the-odds. I’ve a mate (76 this year) who has done reasonably well with two of the banks for the last few years. Another younger friend has bought and sold _just_ Apple shares… and has made a reasonable living from it. Almost everyone else I know has made pocket money… or lost… bigtime.

    Our sons are an exception… buying Vanguard ETFs… but mainly because the Australian dollar has fallen from $1.10 to 68c. Both could have retired on that little windfall.

    Me? I’m a dummy! Still working very hard at 69. We did sell a house to a tenant recently. Second time that has happened to us…. this time after they’d rented for six years. Last of the WA FHBs. A very healthy win/win for all… .

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