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Better to get the pain over and done with

Lesley Beath  |  05 Oct 2011Text size  Decrease  Increase  |  

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The views expressed in this report are those of Lesley Beath and may differ from Morningstar's views.

 

Reviewed this week

 

Please note: before making an investment decision, Morningstar recommends you read the fundamental research available on these stocks.

Disclaimer: To the extent that any content in this report constitutes advice, it is general advice that has been prepared by Lesley Beath without taking into account the particular investment objectives, financial situation and particular needs of any individual investors. If necessary, you should consult with a licensed investment adviser or dealer in securities such as a stockbroker before making an investment decision. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.


Overview

The US market ended last week marginally lower, but there were some interesting performances elsewhere.

Italy, Spain and Germany were amongst the top performers with gains of 8.6%, 8% and 5.9% respectively. The World Morgan Stanley index increased by 3.2%.

In Australia, the ASX 200 gained 2.7% but most of that gain has since been wiped out.

The Shanghai Composite continues to be a concern, declining by 3% last week.

In the domestic market there were solid gains in a number of sectors. Consumer Durables (+7.3%), Banks (+6.1%), Retailing (+5.5%), Insurance (+4.5%) led the advances.

Materials were flat. But for the month as a whole, the Materials index lost 13.6%, the Small Resources fell 16% and the Midcap Resources took the wooden spoon with a 21% decline.

Losses in some of the larger resource stocks (for the month) was hefty, BHP Billiton (BHP) -11.9%, Rio Tinto (RIO) -14.8%, Fortescue (FMG) -27%, Iluka (ILU) -23.6%, and OZ Minerals (OZL) -20.2%, Energy related stocks fared a bit better with Santos (STO) - 3.2%, Woodside (WPL) -7.7%, and Oil Search (OSH) -10.4%.

But let's just take a look at the some of the larger losses in the ASX 200 for the quarter.

The resource stocks made up a large percentage of the worst performers, but there were a few surprises on the industrials 20111005-. Murchison Metals (MMX) -56%, Goodman Fielder (GFF) -55%, Paladin (PDN) -53%, Alesco (ALS) -48%, BlueScope (BSL) -41%, Gunns (GNS) -45%, Lynas (LYC) -38%, Southern Cross Media (SXL) -37%.

And while we are looking at statistics, let's take note of some of the performances since the All Ords peaked on April 11. I have kept it to the Top 50 stocks.

Alumina (AWC) -45%, FMG -35%, Macquarie Group (MQG) -35%, Leighton (LEI) -34%, Qantas (QAN) -33%, WPL -33%, QBE Insurance (QBE) -32%, AMP (AMP) -32%, STO -31%, RIO -30%, and BHP -29%.

On the positive side, the best of the Top 50 over the quarter were Fosters (FGL) +13%, MAp Group (MAP) +11%, Telstra (TLS) +9%, and GPT +1%.

This makes for some depressing reading, and even when the Fundamental and Technical news remains worrisome, sometimes looking at the cold hard facts is even more challenging.

So what now?

Well the outlook for the US remains a concern. The odds of further weakness is high. Interestingly some of the European markets are looking a little more constructive. Weekly 'key reversals' that were registered in Germany and Spain a couple of weeks ago remain intact; that is encouraging, but unfortunately not enough to get excited about.