Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
How the ASX market sectors performed
The Australian equity market avoided a fall of 30 per cent or more in 2019/20, which is where it was headed when things were at their worst in March, but it was still the worst local sharemarket performance in almost a decade. On a sector by sector analysis, there were some surprises.
The sectors that led the Australian sharemarket in the year to June were consumer durables, which rose 39.1 per cent, pharmaceuticals and biotechnology (up 31.2 per cent) software and services (up 18 per cent) and retailing (up 18.8 per cent).
Australia’s biggest listed company (by market capitalisation), CSL, rose 33 per cent over the year.
The Australian equity market benchmark, the S&P/ASX 200, fell 10.9 per cent in 2019/20 – its worst performance since 2012. The result would have been much worse if the market had not rallied strongly from its low in March. There was a wide range of outcomes among the various market sectors.
The S&P/ASX 200 hit an all-time high of 7162 points on February before plunging 36 per cent to 4546 points on March 23. It finished the year at 5897.
Banks and energy were the two big losers – down 28.3 per cent and 31.2 per cent respectively. Other sectors that lost ground over the year were insurance (down 26.3 per cent), real estate investment trusts (REITs, down 23.4 per cent), telecommunications (down 14.9 per cent), and resources (down 11.2 per cent).
Among the big banks, Westpac’s share price fell 36 per cent, ANZ’s fell 34 per cent, NAB’s fell 31 per cent and Commonwealth Bank’s fell 16 per cent.
Some of the top stocks included Afterpay, whose share price rose 143 per cent over the year, Perseus Mining (up 123 per cent), Fisher & Paykel Healthcare (up 121 per cent), Mesoblast (up 120 per cent), Megaport (up 85 per cent) and Domino’s Pizza (up 82 per cent).
Some of the worst performers included Southern Cross Media, whose share price fell 80 per cent), oOh!media (down 71 per cent), Flight Centre (down 70 per cent), G8 Education (down 68 per cent), Webjet (down 66 per cent) and Unibail Rodamco Westfield (down 60 per cent).
With a deep and possibly prolonged recession looming, a number of commentators have pointed out that the rally in global equity markets since March is not based on fundamentals. However, it is worth keeping in mind that over the long term earnings drive stock prices.
Macquarie Securities has forecast that ASX-listed banks will suffer an average 31.9 per cent fall in earnings per share (EPS) in 2019/20 and a further fall of 5.9 per cent in 2020/21, before a pick-up of 19.7 per cent in 2021/22.
For the broader financial sector, Macquarie has forecast an average fall of 33.7 per cent in EPS in 2019/20, followed by growth of 7.8 per cent in 2020/21 and growth of 18.7 per cent in 2021/22.
For the resources sector, Macquarie has forecast an average fall of 3.4 per cent in EPS in 2019/20, a 2.7 per cent recovery in 2020/21 and then another decline of 2.9 per cent in 2021/22.
For the REIT sector, Macquarie has forecast an average fall of 8.3 per cent in EPS in 2019/20, growth of 3.1 per cent in 2020/21 and further growth of 7.9 per cent in 2021/22.
Judging by Macquarie’s forecasts, investors looking for yield will have to work harder over the next few years. It has forecast that the average yield from banks stocks will fall from 8 per cent in 2018/19 to an average of around 4 per cent over the next three years.
Among ASX 100 stocks, Macquarie expects that yield will fall from a historical average of around 5 per cent to around 3 per cent over the next three years.
