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S&P/ASX 200 – 10 Years of Much Ado About Nothing

September 19th, 2017 · Greg Atkinson · 17 Comments

Ten years ago the Australian stock market was at an all time high with the S&P/ASX 200 Index at around 6,500. Just a few months later however the  the global financial crisis played havoc with the markets and the ASX 200 slumped to around 3000. But even during those darkest days I did not imagine that a decade later the Australian stock market would still be below 6000.  Yes the mainstream finance media might excitedly churn out eye-catching headlines every time there is a minor rally or correction, but the sobering reality is that during most of the last 10 years the Australian stock market has done very little.

Although the performance of the ASX 200 Index over the last 10 years has been fairly dismal, the one bright spot is that the dividend yield from many  ASX 200 listed companies has provided a steady flow of income during a period when holding cash in the bank has become increasingly less attractive. Having stated that though, the 10 year chart for the ASX 200 is nothing to get excited about.

S&P/ASX 200 Index (XJO) 10 Year Chart

S&P/ASX 200 Index Chart 2007-2017

As of today the ASX 200 is just below 5800 and this is approximately 13% below the high of around 6,700 reached in October 2007.  Of course in the months ahead a 10 year comparison is going to improve as it will reflect the ASX 200 rapidly falling towards 4000 in 2008. However I doubt most investors have a shares portfolio made up exclusively from stocks purchased as the market bottomed-out. (although I’m sure plenty of people will claim to have done so)

If we now look at a few blue-chip companies included in the ASX 200 we can see that although a stock such as Qantas has posted healthy gains during the last few years, overall its share price is trading below its 10 year high.

ASX 200, Commonwealth Bank, Qantas & BHP Biliton 10 Year Chart

XJO, CBA, QAN, BHP 10 Year Chart

On the chart above only Commonwealth Bank (CBA) shares are trading higher level than they were 10 years ago. although the CBA share price is lower than the multi-year high it reached in early 2015. Qantas shares, despite a good run recently, are down around 8% and not surprisingly the end of the commodities boom (or hysteria) has helped send BHP shares down around 37% from the level they were trading at 10 years ago. Where these stock prices will be in 10 years time is anyone’s guess. My guess would is that Qantas and CBA might have already peaked but BHP may be higher. That might sound little pessimistic but it reflects my view that the Australian economy has also peaked for this cycle and in the years ahead maintaining economic growth is going to get a lot harder. I also believe that economic growth in China has probably already peaked as well and that Chinese GDP is going to slip back to 5% within the next decade.

In terms of international comparisons I imagine most investors would not be surprised that the United States stock market has out performed the Australia stock market. But Japan’s Nikkei 225 has also outperformed the ASX 200 over the last 10 years – so if your looking for an example of a “Lost Decade” then you don’t need to look any further than the Australian stock market.

ASX 200, Nikkei 225 & DJIA 10 Year Chart

DJIA. Nikkei 225 and ASX 200 10 Year Chart

The Nikkei 225 may only be up around 20% over the last 10 years but its outperformed the ASX by around 33%.  Though if you read most mainstream media articles about the Japanese economy you’d probably think the country was on its economic knees. It’s also worth noting that it’s generally Japanese companies buying up Australian assets and companies and not the other way around. As for the Dow Jones, it’s up around a respectable 60% and much of that gain has been posted in the last year and a half.

Normally I focus on the ASX 200 (XJO) as this index is not only made up of the largest Australian companies but also most of these have direct exposure to overseas markets. In terms of looking at a stock market index that is more focused on the domestic economy then I believe the S&P/ASX Small Ordinaries (XSO) is good for that purpose.

ASX 200 versus ASX Small Ordinaries Index 1o Year Chart

ASX 200 & ASX Small Ordinaries 10 Year Chart

On the chart above the movement of the ASX 200 Index is shown by the yellow line and the Small Ordinaries Index by the dark thin line. Clearly smaller listed stocks have fared much worse than their larger ASX 200 cousins and by a considerable margin. Compared to 10 years ago the XSO is down around 37% and is also below a high in 2010 and another (lower) high in 2016. Like the ASX 200, the XSO has also been basically moving sideways for most of 2017.

Looking ahead I expect the ASX 200 to fall back towards 5500 and finish the year lower than where it is now as per my Australian Stock Market Outlook & Forecast for 2017  To be clearer, I am expecting the next major movement for the ASX 200 to be down and when I say major I mean a movement of around 10% or more. As for the ASX 200 reaching the high of a decade ago, maybe that will happen next year – but at the moment I reckon we may have to wait a little longer.

This article was written by Greg Atkinson who is the Managing Director of Ohori Capital. He can be followed on twitter via GregAtkinson_jp


17 responses so far ↓

  • 1 lachlan // Sep 23, 2017 at 7:00 am

    “I expect the ASX 200 to fall back towards 5500 and finish the year lower than where it is now”
    That seems likely from a price technical viewpoint to me also.
    I prefer the immediate outlook for the XSO over the XJO. Those small caps certainly died after after 2011 and all the excitement that I and others had for the little fellas.

  • 2 Greg Atkinson // Sep 23, 2017 at 10:43 am

    Yes the Small Ords really got hit hard & apart from a bounce off the GFC bottom they have not done much since. I use to invest in Small Caps but got burnt several times very badly. Now I reckon it’s just normally not worth the risk.

  • 3 lachlan // Sep 26, 2017 at 7:40 pm

    Maybe they are too time consuming for many people too.

  • 4 Greg Atkinson // Sep 27, 2017 at 1:30 pm

    That could be one reason plus most funds/ETF’s don’t touch them.

  • 5 Shaun // Oct 19, 2017 at 6:28 pm

    XJO looks well placed to finish at 6000 or higher by end of this year. It took a while, but now it looks like the XJO is doing a bit of catch up with the rest of the world!

  • 6 Biker // Oct 23, 2017 at 7:40 am

    Interesting claim: “The International Monetary Fund found that one percentage point of gross domestic product (GDP) invested in infrastructure leads to 1.5 per cent GDP growth within four years.”

  • 7 lachlan // Oct 24, 2017 at 4:29 pm

    More than the odd caveat needed there Biker.
    Well the asx broke against its bear flag for now. In any event my small caps are doing something. Lucky for me I own Castle Minerals. Barely watch these micro gambles but a 4-5X jump! …i might have to research it tonight.
    Argonaut looking nice too Biker.

  • 8 Greg Atkinson // Oct 24, 2017 at 7:29 pm

    Shaun the XJO usually surprises me near the end of the year so you might be right. I feel a significant correction is overdue but the Trump tax plan may keep the rally in the US markets going and drag our market along for the ride.

  • 9 Biker // Oct 26, 2017 at 4:09 pm

    Yes, Argosy (which I failed to act on) quickly rose from 14c to 31c (currently 24c), Lachlan. You did well on CDT… . I guess you must have bought in at 1c!

    Meanwhile lithium looks promising, here:

    http://www.watoday.com.au/business/mining-and-resources/ground-zero-for-lithium-electric-cars-spark-a-new-boom-for-australian-miners-20171025-gz8dgy.html

  • 10 lachlan // Oct 28, 2017 at 4:37 am

    I’m up double on CDT biker but I only have small change in plays like those anyhow. Its just that they went up suddenly from about a cent to 4.5 or so recently. I’m just waiting for those sorts of things to go up 10,20,30X to bother even selling them. I have taken some profits off larger plays like SAR but the littlies I just can’t bring myself to sell. Some have gone up 3-4 X and I just watched them go back down again. Hoping CDT might be the first to go up big-time for me. That’s another problem with the small-caps i found. They can go up even 50X in many cases. However many of them go nowhere or just plain broke. So there’s a restriction on the amount of capital you’d allocate. I just spread mine out over a large number of beaten down plays, take my losses and wait for something big to happen. It’s a lazy method admittedly. There are people doing well on them that pour over them every day. I haven’t the time. If I want to park a large amount somewhere down the track I will be looking for severely beaten down blue chip energy plays most of the time. I’ve had good experiences with that approach.

  • 11 lachlan // Oct 28, 2017 at 4:51 am

    Yeah so I cant sell them at 3-4X in other words because on net its not a profit at all. Once the losses on others are accounted for. I’m looking at losses or nothing on most and a large gain on a couple…something like that, to have a win. So if I tell one of my tiny caps went up 4X…its more about why and where it might go from there. However it still doesn’t mean I’m in any sort of money overall.
    Loving my new house. I’ve lived in old farmhouses for so long (to save money) I sort of feel guilty. It even has a pool.

  • 12 lachlan // Nov 5, 2017 at 4:03 pm

    And look at the asx go. I can predict breaking 6000 this week, so it can crash. Well price analyses like that works on the assumption of a trend holding…and of course they may not. The bullish stair stepping trend is well established since about a week after this article was written. However, trends change.

  • 13 Biker // Nov 6, 2017 at 7:04 pm

    Yes, I also thought it might crash thru’ that barrier, Lachlan. Still surprised it’s so close to 6000. Called that one wrong!

  • 14 Biker // Nov 15, 2017 at 5:07 pm

    Collett follows up on your ten-year sentiment, here:

    http://www.watoday.com.au/money/investing/dont-expect-the-asx-to-recover-its-alltime-high-soon-20171110-gzit5e.html

  • 15 lachlan // Nov 18, 2017 at 6:41 pm

    Some nice retracement on that break through 6000 this last week. Few profits taken there. Just to wait and see if it gets back on up again. Putting the price stuff aside I tend to think that fundamentals are be pushing towards a correction. It just depends how bubbly the various debt bubbles can stay. It seems fair enough that if everyone keeps playing that game then you might get a half baked sort of bull market such as we’ve had. Keeping mind that the price of consumables is rising at the same time. No free lunches.

  • 16 Biker // Nov 23, 2017 at 10:15 pm

    Trying to make sense of it all. Food for thought here:

    http://thereformedbroker.com/2017/11/22/the-year-of-living-dangerously/?utm_source=dlvr.it&utm_medium=twitter

  • 17 lachlan // Dec 17, 2017 at 8:47 am

    XSO has had a very nice run since your article Greg. Up about 10%.

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