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The Australian Stock Market is Struggling

October 31st, 2016 · Greg Atkinson · 30 Comments

Although many commentators in the finance media have found reasons to write excitedly about the Australian stock market during the last two months I have been unable to do so. Yes some ASX listed shares have risen sharply in price and profits have been there for some investors, but overall it’s been a very dull and boring few months apart from a correction that I wrote about at the end of August.

From late August until the middle of September the S&P/ASX 200 slumped from a high of 5592 to a low of 5192. Afterwards there was a bounce back towards 5,500 but that fizzled out in October and at the time of writing the ASX 200 was around 5300. As shown by the chart below, the Australian stock market has also slid backwards during the last three months and the next three months may see the market slide back even further.

S&P/ASX 200 Index 3 Months Chart (October 2016)

S&P/ASX 200 Index 3 Month Chart (Oct 2016)

Looking at the longer term it’s clear that the Australian stock market has struggled to post and hold onto major gains. The only rally that genuinely lent itself to bullish media headlines during the last three years was back in early 2015 when the ASX 200 made a serious run towards 6000. However after flirting with 6000 for a few weeks all the gains were given up and then the market fell to a multi-year low of just above 4700.

The ASX 200 and ASX All Ordinaries are both around the same level as they were three years ago. Looking at the 3 year chart of the ASX 200 below we can see that the market has essentially been drifting sideways (yet again) apart from the rally in early 2015.

S&P/ASX 200 Index 3 Year Chart (October 2016)

S&P/ASX 200 Index 3 Year Chart (Oct 2016) Currently the ASX 200/All Ords are both trading well below the highs of late 2007 and have never reached those highs again since the global financial crisis. It also seems unlikely that the Australian stock market will move past 6500 next year and so the “ASX Lost Decade” will soon be a reality. Looking forward there’s not a lot to suggest that the market will rally and hold onto significant gains this year although there might be a post U.S election bounce.

As I have mentioned before the financial and resource sector stocks move the ASX 200. Many people may think that it has been the mining stocks that have been dragging the market lower recently, but it’s  actually been the banks that have come under selling pressure. Meanwhile many mining & resource related stocks  have been slowly edging upwards. We can see this reflected in the share price charts of Westpac Banking Corporation (ASX:WBC) and BHP Billiton (ASX:BHP).

Westpac Banking 1 Year Stock Price Chart (October 2016)

Westpac 1 Year Stock Price Chart (Oct 2016)

BHP Billiton 1 Year Stock Price Chart (October 2016)

BHP 1 Year Stock Price Chart (Oct 2016)

During the last 12 months Westpac (WBC) shares have bounced around within a fairly narrow range with the end result being that the share price is approximately at the same level as it was 12 months ago. Meanwhile BHP has been somewhat of a quiet achiever and whilst much of the reporting about the resources sector and BHP has been negative, its share price has nonetheless rallied strongly after hitting a multiyear low of $14.06 back at the start of 2016.

During the next few months I’m expecting that banks stocks will struggle to remain around current levels and probably fall as the property market in Australia cools. On the other hand the resources sector has probably past the worst of a cyclical low and stocks like BHP may continue to gradually edge upwards. Overall my view of the Australia stock market is that it will continue to struggle for some months to come and perhaps struggle well in 2017. But along the way there should be opportunities to pick-up some blue-chip stocks for those investors who are willing to wait some years for a reasonable return.

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

30 responses so far ↓

  • 1 lachlan // Nov 8, 2016 at 4:20 pm

    Well there you go Greg and in the vein of your sentiments here, the dj was up 371 points last night, just over 2% gain. Today, the xjo by contrast has a 0.13% gain to show for itself.
    And now for the circus, I mean the US election.

  • 2 Greg Atkinson // Nov 9, 2016 at 12:43 pm

    Well the market is getting a good shake today and I think this time we can say with some certainty the U.S election is what is moving the ASX. Why though an investor would sell quality ASX listed stocks because Trump might be elected is beyond me. So it might be time to look for some blue-chip bargains.

  • 3 Biker // Nov 9, 2016 at 5:24 pm

    GA: “…might be elected…” (?)

    While I agree that such Black Swamp events undoubtably offer many buying opportunities, I believe that the uncertainties we’ll live with for some time will sustain that ‘good (?) shake’ for some time to come.*

    Determining the bottom of that big pond will be tricky!~

    * I like the shaking analogy, though. The word ‘tectonic’ was used quite appropriately by a female newsreader… .

  • 4 lachlan // Nov 9, 2016 at 10:01 pm

    Dow futures predicting a trump dump after it voted for Hillary last night. It’s telling us the “establishment” is not pleased with the Don if you can believe it. I don’t. Donald will not change anything integral to the current system. Like most politicians he has made promises to too many different people while in reality he doesn’t have the sort of control necessary to make them all happen. Might be a buying opportunity though, yes.

  • 5 Greg Atkinson // Nov 10, 2016 at 8:57 am

    Well it looks like the ASX will shake off the Trump election today. It never made sense to me why investors would sell good quality ASX stocks yesterday & today I won’t be joining the buying frenzy either.

    If I can, I will stay focused on the longer term and try to ignore the shorter term noise.

  • 6 Biker // Nov 10, 2016 at 7:36 pm

    Summed up well in this byline today: “…one of the most incredible reversals in history…”

  • 7 lachlan // Nov 12, 2016 at 8:37 pm

    comex copper price wooosh

  • 8 lachlan // Nov 14, 2016 at 5:35 pm

    Ok well regardless of the bullish xjo I picked up some steeply discounted SAR today. Despite wanting to hold I had to sell out my remaining holding some weeks back however that was at over 30c higher so very good luck there. Might buy more too if they keep plummeting next few weeks. Otherwise getting back into WOR today also but the price is now a little higher. I have no idea where they are headed. Long term higher is my assumption obviously however I would not be surprised if they dip first.

  • 9 lachlan // Nov 16, 2016 at 4:35 am

    Dow still looks bullish while our market deliberates whether it will break up or down decisively. In the meantime some individual stocks are interesting and I’ve been lucky with timing on some stocks I had to sell or partly sell recently. I sold part of my NHC position when it had a price spike; i got 2.08. Yesterday I was able to buy back a bigger chunk for 1.69. Aren’t retracements wonderful? Thankfully Donald’s coal loving comments did not made it rally πŸ™‚

    Well Greg, I think that market analysts attribute all varieties of causality imaginable for market moves, which are probably, often demonstrably way off the mark. It’s an irrational fascination after years of proving they have no idea, or else it just amuses/attracts readers.

  • 10 Biker // Nov 16, 2016 at 10:09 am

    Lachlan: ” …often demonstrably way off the mark.”

    How true. I can now disclose that:

    1.) Expecting Hillary to win…
    2.) …I shifted the residue of my Super to International shares…
    3.) … and had a small win, after Trump won!

    Our eldest went to bed early, feeling ill after DT won.. and made _major_ money, much to his chagrin!~ πŸ™‚

  • 11 lachlan // Nov 16, 2016 at 8:44 pm

    I didn’t want to guess the election at all. Some polls were saying Hillary would win. On the other hand the big end of town and globalisation have been unpopular for eight years and while Trump sold himself as a nationalist, non-establishment man, we had Hillary sticking with the status quo. Oh well I guess it revived democracy…for a few minutes. Now i see as trump appoints cabinet positions that the alt right are already beginning to realise that power is about much more than one man. Here comes the mob!

  • 12 Biker // Nov 16, 2016 at 10:56 pm

    His choice of personnel with very, very strongly-aligned positions on key controversial issues is quite clever. By assigning these individuals to the most radical of his pre-election promises, he’s clearly delegating the responsibility (and the potential blowback) to others… .

    My point was really that investors can get it utterly wrong… and still make serious money!~ I think we can also predict that the shaking (whatever direction it takes) will continue for some time… . In my view, nothing is predictable.

  • 13 lachlan // Nov 17, 2016 at 5:06 am

    Agree on all points there Biker and this one,”In my view, nothing is predictable”, you know I learnt that one the hard way, my dogmatism was shaken out of me. I have no idea what this market will do next and I can’t help but ignore the explanations for what when and why. I can still preserve wealth with simple probability and diversification. If something is very cheap by various metrics, I will buy and hold while ignoring the noisy, dogmatic, pundits which invariably exist in times of indecision and consolidation.

  • 14 Biker // Nov 17, 2016 at 11:04 am

    Lachlan: ” I can still preserve wealth with simple probability and diversification…”

    True. We’ve come to realise the wisdom of diversification over time, Lachlan. Even in property, this holds true. One location in which we’re invested is _booming_ … the other is flat… even in retreat, in fact. No real losses sustained, because we’re basically buy-and-hold investors, but one location is really s-l-o-w.

    Wasn’t it Buffett who, writing about his future demise, wrote that his wife would be well-advised (by him!) to diversify by holding ETFs, with Vanguard? Both our kids have done just that, although our eldest has also diversified across all asset classes.

    We are still undecided about our next major investment(s)… but we _will_ diversify… attempting to time-the-market on the way in. We’ll then hold until we peg out!~ πŸ˜‰

  • 15 lachlan // Nov 22, 2016 at 4:49 am

    Biker if my lucky days keep on going I will end up with three properties at a guess; in order to achieve all the things I want to achieve. I think it’s a very good time to be buying in regional areas, very good. Also in some places ahead of the rat race and near to the beaches/reefs.
    Shares: the current media theme suggests Trump equals infrastructure spending and inflation. Dow up nicely last night.

  • 16 Biker // Nov 22, 2016 at 9:19 am

    Lachlan: “I think it’s a very good time to be buying in regional areas, very good…” Too true!

    Sounds like things are going well for you, Lachlan!

    International shares in Super have certainly repaid my punt. You’ll recall that gamble was based on _Clinton_ winning, not Trump! πŸ™‚

  • 17 Greg Atkinson // Dec 8, 2016 at 10:23 am

    Well the US markets finished up again last night apparently due to the “Trump Rally” and the Australian stock market seems to be going along for the ride for now. I’d say the market is getting itself set-up for a healthy correction and maybe before then end of 2016.

  • 18 Biker // Dec 8, 2016 at 11:29 am

    I’d predict a major correction, but think it may be a year or two off. It may take some time before we feel the real impact of US political / economic change. It would be interesting if the UK did an about-turn on Brexit, based on US economic isolationism, if not the much-trumpeted reduction of strategic alliances… .

  • 19 lachlan // Dec 9, 2016 at 4:59 am

    Dj up again last night by 50 odd. The “Trump rally” has about 1600 points under it’s belt now. From a price technical perspective you could say its a breakout predictive of a much larger rally. That may well turn out true however as usual I am cautious about market indexes, they’re ok for a bet between the fellas here but when it comes to real bets I’m preferring sectors which are shaking out. The gold miners look sad after their big gains earlier in the year. Apparently Trump is gold negative lol. Energy plays look better at today’s reckoning.

  • 20 lachlan // Dec 9, 2016 at 5:29 am

    There may be some market bumps, or not, around the time Trump takes office.
    Biker, yes I’ve had another good year and we are expecting three better years ahead in this trade based on activity penned in from customers. I have just about come to the end of investment in business stuff. I had a nursery years ago as you know. When it folded up after 14 years the business investment was worth very little. In this business I have tried to veer away from assets which are too specialised to resell. And I’ve targeted customers higher up the chain. I have land and shedding and machines which have some value. We are adding another new Dmax ute and a third trailer just now. At this point though I am preparing also to buy a little farm somewhere nearby with additional shedding and grasses which would be managed for production. That place is not in view yet, it doesn’t exist on the market to my knowledge. And where I could build a house. The third property idea combines with the actions of my brother (one of) who has considerable rural holding up along the Queensland coast. I won’t get too far ahead of myself but there are lots of interests I have. Preserving land for wildlife, rejuvenating farms and developing more sustainable practices, timber, growing my own food as I get older, access to barrier reef πŸ™‚ I’m interested in securing land with some valuable ecology which can be legally protected somehow. I know that doesn’t always work out well but anyhow. For the time being however I have to keep focused on this business or I will never make it.

  • 21 Lachlan // Dec 10, 2016 at 5:02 am

    Dow up another 90 odd

  • 22 Stillgotshoeson // Dec 11, 2016 at 8:54 pm

    I am thinking DOW has a little more to run. I calling no rate rise by the FED next week. Cheap money for longer will be viewed positively by the market. That being said 10 Yr and 30 Yr bond rates have already moved up. Mortgage rates up in US as a result.

  • 23 Greg Atkinson // Dec 13, 2016 at 12:14 pm

    It’s one of those times when fundamentals don’t seem to matter and speculation is driving the markets. Probably a good time to take profits but I’m not inclined to be a buyer. But no that I have made that comment watch the DJIA race to 25,000! πŸ™‚

  • 24 Lachlan // Dec 13, 2016 at 3:45 pm

    Hi Shoes, what do you think of SAR?

  • 25 Biker // Dec 13, 2016 at 8:51 pm

    I think we should brace ourselves for a rollercoaster ride, Greg. The only fundamental I’d give any credibility is ‘Buy low…’. We’ll see those opportunities in the next two years… .

  • 26 Stillgotshoeson // Dec 14, 2016 at 2:24 pm

    Hey Lachlan, I still like SAR. To be honest though I should have taken profits back in the $1.70’s when I thought they had reached fair value. They went on to just break $1.80 level then retreated.

    Earlier in the year on HC I said that $1.70 to $1.80 would be fair value.

    Gold has been hammered a bit these last few monthe affecting a lot of the goldies. SAR also had the double blow of announcing that they would have a couple of quarters of increased AISC to around $1400 per ounce which was not well received. Fundamentals are good still.

    No debt, looking to achieve full production next year.

    They are still above my average buy price so still in profit, just down a lot from where it was. I feel they will get back up there and probably run a bit higher. I missed out on opportunity cost but in the end profit is still profit.

  • 27 Lachlan // Dec 14, 2016 at 10:51 pm

    Thanks Shoes. I got some profits there while on some other goldies I maybe should have taken some and didn’t. Although I obviously thought a correction was due I am surprised at their drop to this level in fact I bought back some at 1.13. I’m going to play cool here for a while. There may be a bounce from current levels which are near price technical support at least. Otherwise if gold prices move up I think SAR may respond firmly.
    Buying the dip on NHC presently.

  • 28 Stillgotshoeson // Dec 16, 2016 at 7:31 pm

    The pull back has allowed me to be able to buy some more.

    Will look to add more to my portfolio Monday.

    I off loaded PRU last week for around cost and bought PLS. PRU got smacked down 35% today.

  • 29 Lachlan // Dec 17, 2016 at 5:36 am

    In a similar vein Shoes I sold my NCM at a small loss a while back because the chart was so darn bearish and they’ve dropped another six dollars exactly. The good news of course is that some buying days may be around the corner but this pullback sure is a testing one for gold. Otherwise I wondered if the fed hike supports the idea of Trump blowing real inflation into the US with his fiscal stimulus. I even wondered that way back when they first started. Maybe the PM’s are shaking out the weak hands first. Or maybe we’re all ruined lol.

  • 30 Stillgotshoeson // Dec 19, 2016 at 6:44 pm

    I bought 25000 more shares in SAR today for my super fund. Was not overly happy with the new rules for super with the $1.6M cap but hey, 15% tax rate is still reasonable in the scheme of things compared to income rates.

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