Part 1 – Australian Market Sector Performance
The past couple of months have been fairly positive for investors with the market generally drifting sideways. There has been a clear improvement in the year-to-date performance over the past quarter across all the major sectors with the exception of consumer discretionary (refer to our previous Q3 Quarterly Review for more detail), while interest rate-sensitive sectors have all under-performed.
Trading activity will start to wind down next week as we move into the Christmas / New Year period, so we are taking this opportunity to review the ASX market’s quarterly performance to date by analysing the performance on a sector-by-sector basis. This performance is illustrated in the chart below.
Chart: ASX market performance by sector for the quarter starting 1 October 2010.
Year-to-Date Performance
The year-to-date performance of a number of sectors has picked up this quarter (as shown by the black bars in the chart above). As discussed in our third-quarter review it had been a tough year through to the end of Q3, with only consumer staples and utilities (in black) both up around 3.5 percent. Now we see that for the year-to-date the energy (up 5.4 percent) and materials (up 14.8 percent) sectors have shown strength and join the utilities sector which is up 5 percent. A number of other sectors are struggling to end the year in positive territory, including industrial, consumer staples and technology. The outstanding disappointment for the year has been the telecommunications sector which is dominated by Telstra, producing negative returns of -19 percent for the year-to-date.
Monthly Performance
We have seen the market drift higher this month, which is typical for this time of the year. The performance to this point in the month of December (as shown by the green bars) has been subdued with the exception of the information technology sector which has managed gains of over 5 percent. The energy and healthcare sectors meanwhile have managed to hold on to their recent steady gains, up by around 4 percent. The key turnaround has been the telecommunications sector, helped by the progress on the NBN. Poor retail sales figures and the jump in interest rates have combined to impact on the under-performing sectors for this month, which have included consumer discretionary, consumer staples and the utilities sectors which all are down over -3.6 percent to date.
Quarterly Performance for Q4
The quarterly performance (as shown by the blue bars) has been robust for the growth sectors, with materials and energy up 11.7 percent and 7.9 percent respectively, while defensive sectors have staged a turnaround from last quarter’s under-performance, with healthcare up 8.3 percent and info tech up 7.5 percent. Consumer-related sectors have had a tough quarter, reacting to the poor retail sales figures and the jump in interest rates. The consumer discretionary and consumer staples sectors were down over -5 percent. The utilities and the financials have also done it tough this quarter (down -2.2 percent). The banks have been facing the negative influences from tightening interest rate margins, the increasing cost of capital and the government’s regulatory banking reforms review.
The Trade
In summary, the past quarter has delivered a clear improvement in the year-to-date performance of all of the major sectors, with the exception of consumer discretionary. Interest rate-sensitive sectors including financials, utilities, consumer discretionary and consumer staples have all underperformed in this period.
Given the sector performances over the past quarter and year-to-date, there are a number of strategies traders and investors can use, including relative strength comparisons or mean reversion. Investors who use relative strength comparisons and look to trade strong stocks in strong sectors should concentrate on the materials, energy, healthcare and info tech sectors for trading into Q1 of 2011.
Using relative strength we would expect telecoms and consumer-related interest rate-sensitive sectors to continue under-performing. Investors who use a mean reversion strategy may want to concentrate on the financials, telecoms and consumer discretionary sectors, which have been under-performing the broader market, and if they are looking for the market to pull back, then they should look to these outperforming sectors to retrace. Investors will need to monitor the financials sector, which will need to participate if the ASX is to push new yearly highs, beyond the 5000 level in 2011.
Stay tuned for further analysis of the quarterly performance. In the new year we will examine the Australian market’s performance with stocks broken down by market capitalisation.
By Michael Hevern
Head of Research
Tags: ASX, ASX News, Australian Market Sector Performance, sector performance, Stock Market Analysis, Trader Dealer, Trader Dealer News
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