Wednesday's Weekly Wrap

Economy and Indices

For the first time in three months, the Australian market went somewhere; down -2%.

Property and Energy companies out-weighed the falls in Telcos (Telstra).

Comm Bank (CBA) and Telstra (TLS) have fallen out of favour with investors and the Australian market continues to look for a new leader. This rudderless ship is exacerbated by the fact that the AU leaders over the last 18 months have been broken and are falling the fastest.

Clients of many years will know that in times like this we look for the market to fall, to capitulate on the old investment themes. As all seems lost, we look for the next market leaders to emerge from the ashes. Within those ashes, we find the next market leaders to invest in.

At this stage – we lighten our exposure and wait for our time to strike.

Leading Sectors This Week

1. Utilities +2.0%

2. Information Technology + 1.9%

3. Metals and Mining +1.1%

Bottom Sectors

1. Telcos -8.8% (Telstra traded ex-dividend)

2. Consumer Discretionary -2.1%

Segments this Week

The biggest fell the hardest.

This week’s fall in the AU share market has been a “Beta-Fall”, where the largest companies, the Blue Chips, fell the most, -1.4%.

Conversely, the smallest companies, the Emerging Companies, were up +0.51%. The pattern continued with the largest falling the most and the smallest squeezing out gains, progressively right through the mid-cap, small-caps etc.

The best performing companies were mentioned in the most recent episode of Talking Stock.

Market Trends

The AU market appears to be converging since the start of 2017, as the chart below shows:

The black lines in the chart show that all of the sectors of the Australian market are converging to where they started the year – except Telcoms, being driven down by Telstra’s loss of ‘investment grade’ from most self-directed investors.

There have been strong performers within the AU market, however these companies are the exception to the rule and do not show up on the above chart.

For more insights into the top performers, watch Talking Stock or my interviews with Rudi Filapek Vandyck .

Outlook

An important point to note is that these sectors are the market leaders and the leaders are falling – which is not a promising sign.

Listen to my interview with Gary Glover for more insights on where the AU and US markets are heading – note that Gary picked the August market-top in our interviews months ago.

While there is no conviction in the current market leaders, we’re keeping trading positions light and will wait for a more dramatic wash-out or market fall. After such events, we look for the new leaders to emerge because, statistically, that’s when our approach to markets generate the best returns.

More

For insights on how to use these trends and themes within a portfolio, watch The Portfolio Series here.