Over the years you learn a thing or two about equity markets. To state the facts, the Australian market does not go up in a straight line and is inherently less bullish than its bigger brother in the USA. There are a number of considerations to be made when looking at why this divergence occurs between the two markets and most notably it is that we are dominated by 2 sectors: Banks and Miners.
Sometimes the Australian market has an ability to fall despite what the rest of the world is doing. We have been on the end of some serious selling since the start of May – our market was down over 9% at one point. During the same period of time the FTSE was down 4% and the Dow Jones was down 3%.
A lot of queries have been coming in over the last few weeks about the performance of the defensive portfolio. The investment mandate of the VFS defensive portfolio is to outperform when the markets are moving lower by protecting the asset but to also to provide long term returns to the investors through conservative growth and income.
A week on from our Market update and the world of equities isn’t as doom and gloom as some would have suggested. Corrections typically happen quickly and this is what we observed last week. The fall can be attributed to some poor numbers out of the banking sector, these poor numbers were considered ” misses” by many and this led to falls of over 15% in each of the four major banks. Given that they dominate the All Ordinaries index most things followed the market lower to see the index hit a low of 5600 – this represented a 6% correction.
The XJO has traded sideways for the last month with clear support at 5800 and resistance above at 5980. The much anticipated move through 6000 has not occurred yet in part due to the RBA’s most recent no cut announcement but also from a heavy resources sector that is struggling to deal with a never ending fall in commodity prices.