Investors fearful of market decline

By Dale Gillham. Published at May 17, 2019, in Market Wrap

Earlier in the week the Australian stock market fell heavily on news that the US trade war with China was once again heating up. Investors were already nervous given that many believe that a change in government on Saturday could see the Australian stock market fall away. So will the sun shine tomorrow or should we get ready for a storm?

I believe you can put away your umbrella, as both the US trade war with China and the Australian election are just distractions that can be largely ignored. Regardless of the result in the election, the Australian stock market is and will continue to be bullish. While the US and China are expelling enough hot air to float an army of balloons, both leaders want to be seen to be doing the right thing for their country. That said, this doesn’t diminish the fact that economically they both need each other.

After falling heavily early in the week, the Australian share market recovered mid-week on the back of the Materials and Energy sectors. By Thursday the market was trading higher for the week in a show of resilience, despite the Banks falling away once again.

The third quarter trading update for the Commonwealth Bank flagged an extra $714 million in additional customer remediation’s resulting in their shares falling heavily, and at one stage they were down over 4% on the previous week. NAB and Westpac both paid dividends this week and their share price fell away accordingly, although the fall was more than normally expected, indicating the banks are still weak. NAB is down over 4% and Westpac down around 6%.

Looking at the top stocks in the ASX 200, Fortescue shares jumped 11% after the board announced a fully franked dividend of $0.60 per share. Fortescue has been one of the top stocks in the market this year with strong iron ore prices being the main contributor to the company’s performance, alongside a strong balance sheet and plans for expansion.

Lend Lease rose 10.6% on whispers of a potential takeover by a major Japanese company, while the US China trade war escalation has seen Evolution Mining shares rise over 9% in the past week. The worst performers include Reliance Worldwide, which is down 21% after releasing an update with revised guidance and Mayne Pharma Group dropped 14% following a downgrade from a UBS analyst.

The sectors that performed well this week include Materials up 3%, and Energy and Telecommunication, which were both up over 2%. Financials was the worst performer down over 3%, followed by Utilities and Consumer Discretionary which were just in the red.


So what do we expect in the market?
As I have mentioned on a number of occasions, the Australian stock market is showing amazing resilience in the face of a lot of speculation and uncertainty. While I think it is possible the All Ordinaries Index can fall to between 6,100 and 6,200 points in the next four weeks, it appears as though it will more than likely rise.

While I am prepared for a possible short term volatile down move with the election result and possibly more trade war news from the US, I am certain it will be short term and that the Australian stock market will be bullish in to the second half of 2019.

My advice to investors is to stay calm and carry on.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in book stores and online at www.wealthwithin.com.au

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