Australian Share Market Sector Performance 2016

 Disclaimer.  This article is for information and education purposes only and should not be considered financial advice.  Past performance is not a guarantee of similar future performance.

The February meeting reviewed investment categories used by small investors in the period for the 2016 calendar year to the present. Most categories experienced positive returns in this time.  Discussion was focused on the Australian stock market (ASX) as this offers the most flexible opportunity for smaller investors.  Stocks (shares) in the ASX may be placed in broad sections based on their principal activity.  A good means to consider sector performance is to use charting tools to display the price as a function of time as outcome is not dependent on single starting and end dates and a longer time view is obtained.  Many online and desktop charting programs offer the ability to plot the performance of a number of sectors on the same graph.

A “Performance graph” for a number of sectors is shown in the Figure above.  As a reference, the Australian All Ordinaries index (XAO), shown in brown in the Figure, had a better than 10% gain depending on your specific starting and end date. The best performing sector was the gold sector.  The graph for the Gold Sector (XJD) prices is similar in shape to that for the international price of gold over this period.  At current prices, a number of ASX gold producers have positive cash returns as shown in company reports.  Among gold producing companies with good economic health are Newcrest Mining (NCM), Regis Resources (RRL), St Barbara (SBM) and Resolute Mining (RSG). All had much better than 100% price gain in the early part of 2016, following by a significant price drop as shown by the gold line in the Figure.  2017 has seen a significant recovery from this drop in the price of gold stocks.  As seen in the Figure, gold is a particular volatile sector.

The Materials Sector (XMJ) as shown by the red line in the Figure experienced a good steady price gain over the 2016-2017 period.  This section includes BHP Biliton (BHP) and Rio Tinto (RIO), both of which had better than 50% gains.  Increases in the international prices for iron ore and coal contributed to these gains.  Iron ore producers such as Fortescue Metals (FMG) had a better than 300% gain over the period.  The price of FMG is much more closely related to the price of iron ore than BHP and RIO.  Mining services companies such as Downer EDI (DOW) also performed well over the period with better than 50% price increases.

Price variation in the more conservative Financial Services Sector (XFJ) (including major banks) was less variable.  As seen by the blue line in the graph, this sector under performed the All Ordinaries index (brown line) until November 2016 and then the relative performance improved from November to the current.  For a conservative section, the increase in price has approached 20% in the November 2016 – February 2017 time frame, which is a very good annualised return.

Finally for this discussion there is the Telecommunications Sector (XTJ) (green line in the Figure) which had a dismal period price wise.  This sector includes Telstra (TLS), TPG Telecom (TPM) and Vocus (VOC) all with price falls. over the reference period.  The latter two had price falls greater than 50% from highs in the period.  Simple maths indicates that to recover from a 50% fall in price, a 100% gain in price is required.  Volatility is becoming an increasing feature of all stock markets.

Of interest at this time to discuss at future meetings is whether the current upward momentum in the Gold, and Materials Sectors (and to a lesser extent the major Banks) is continuing.