All Ords Report 13 September 2018
It has been an interesting few months for the Australian market, with many stocks rising strongly on announcements, however, there were a number of companies that missed earnings expectations or downgraded their forecast and are now ‘worse for wear’. Some companies are likely to have been oversold. Good stocks will continue to rise.
The major theme for the corporate reporting season is that it proved to be a positive influence on the Australian market.
Interestingly, if you compare the performance of the market this year to the prior year, it has performed significantly better in 2018, post reporting season. Last year, the All Ordinaries Index (XAO) fell by around 3 per cent in August and continued to fall into November. This year, over the same period, the market has risen by around 1 per cent.
As with every reporting season there are winners and losers.
The Winners this reporting season include; Credit Corp Group (CCP), JB Hi-Fi Limited (JBH), Telstra Corporation Ltd (TLS), TPG Telecom Ltd (TPM), Afterpay Touch Group Ltd (APT) and Webjet Limited (WEB).
Those who were not so lucky included; Rio Tinto Limited (RIO), Iluka Resources Limited (ILU), Origin Energy Ltd (ORG), Ansell Limited (ANN), Flight Centre Travel Group Ltd (FLT) and Fortescue Metals Group (FMG).
Looking at the reporting season summary, around 50 per cent of companies beat analyst expectations, while only 20 per cent were below expectations. Looking back at the same period in 2017, approximately 40 per cent were ahead, while around 30 per cent missed the mark. Given this, our market has had a good reporting season.
How have some of the sectors performed?
The Materials (XMJ) sector has fallen heavily over the past couple of months. The big miners, Rio Tinto Limited (RIO) and BHP Billiton Limited (BHP) have fallen by approximately 12 and 13.5 per cent, respectively from the high in August 2018. Implications of the US/China trade war on Australian resources companies was a contributor to the volatility.
Another sector that struggled is Utilities (XUJ), down by approximately 6 per cent in the same period. Also note, from the high in June 2017, Utilities fell by 16 per cent. Also, the Financials (XFJ) sector is down by around 5 per cent since the high in August.
It was good to see the Telecommunications sector (XTJ), which Telstra (TLS) dominates, finally receive some support and demonstrate that there is light at the end of the tunnel.
Telecommunications has risen approximately 14 per cent since the 1st of August. Following US reporting season, US fund managers had indicated that Telecommunications was the only sector undervalued in the current quarter. Telecommunications stocks in Australia benefited.
Also, TPG Telecom Ltd (TPM) and Vodafone announced a $15 billion merger, which provided some excitement for investors. This deal is likely to be positive for both businesses and will benefit consumers, as the combined entity will be on a scale to rival Telstra and Optus.
Telstra announced a fall in profit of 8.4 per cent to $3.6 billion, as competition for mobile customers intensifies, however, the market responded positively to the planned roll out 20 new 5G towers by December, driving the price above $3.
Although the Australian market has performed solidly over the past few months, investor sentiment is still a little uncertain. When speculators announce predictions of a crash people with little or no knowledge naturally become fearful, but should they be?
Is the Australian stock market about to crash?
There has been a lot of speculation of late that the US stock market is heading for a major correction or may even possibly crash similar to the GFC, and many are purporting that Australia will follow suit.
All of this negativity makes investors indecisive about which direction the market is likely to head and what they should do. The question that has been raised over the past few days is whether the share market is crashing now and is it time to panic?
The simple answer is no, the market is not going to crash right now; rather the market is simply having a normal pull back. Overall, our market is currently bullish and is likely to remain so.
One thing I am absolutely certain about is, if the masses are concerned because they’ve read stories about a pending crash, then the market will not crash.
Also remember, markets do not crash at the top; instead they will generally provide many warning signs that alert you to get out, which we are not seeing right now. The most important thing you can do is not respond to fear, it is to have plan to manage risk, even when the market is bullish.
You may choose to learn how to recognise those signs on the market and your favourite stocks.
What do we expect in the market?
The All Ordinaries Index (XAO) opened at 6,252 points on Monday before rising slightly to 6,291 points and on Thursday was trading close to where it began trading for the week.
When the market is bullish, it will typically rise between 15 and 22 weeks before it pulls back for a number of weeks. Interestingly, the market traded up over 21 weeks to the recent high of 6,481 points and, therefore, must now come back for between two and eight weeks to build sufficient support for the next rise.
Overall, I believe that the outlook for the Australian market is likely to remain largely positive in the medium-term and it is probable for the XAO to achieve a new all-time high in the first half of 2019.
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Dale Gillham is Chief Analyst at Wealth Within