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    wall climbing

    Climbing the wall of worry

    The Australian sharemarket has this year enjoyed its strongest first quarter since 1991, having shaken off the blues just before Christmas and climbed up 9 per cent to just below where it was at the start of October last year.

    It’s a dispiriting reality however that if your market goes down by 9 per cent in a quarter, as it did between October and Christmas, it has to climb by a bigger percentage than that to get back to where it was.

    Even a 9.5 per cent climb didn’t quite get there, closing the March quarter at 6180.3 compared with 6207.56 six months before, where the big dipper ride began on October 1.

    That said, the market hasn’t paused significantly for breath since and is a shining example of how markets “climb the wall of worry” at certain times.

    For all our falling house prices and nervousness about the Chinese slowdown and the imminent federal election, and now concerns about the inverted yield curve in the US, investors have effectively concluded that our market was looking oversold and kept buying through the normally quiet holiday period.

    The phenomenon of having short term interest rates climb higher than long term rates, which is what produces the inverted yield curve, is regarded as an early harbinger of a recession, which is why so many commentators are cautious.

    Other more sanguine observers note that the scramble to buy US ten year bonds at high prices (and therefore low yields) is behind the inversion. In turn the bonds moved because the US Federal Reserve is now thinking of cutting interest rates, which would push bond prices even higher.

    All sectors of our market climbed higher in the quarter but the best performers were technology stocks and miners, which were respectively up 16 and 20 per cent over the period.

    Global tech stocks had a purple patch while miners particularly enjoyed some higher commodity prices, most particularly iron ore.

    The ore price climbed from just over $US69 a tonne in November to $US88 in February, thanks partly to shortages of feedstock in China and partly to continuing dam concerns in major producer Brazil.

    The banks, health care stocks and consumer staples stocks were all laggards in the period but they still closed the quarter higher than where they started.

    The ASX200 Technology index was up 20 per cent over the period while the ASX200 materials index rose 15.7 per cent. By comparison the financials index, which of course includes the banks, was only up 4.8 per cent.

    Where did that all come from? Much of the benefit in our market came from the fact that other developed markets had the same idea: indeed, did even better.

    For the first quarter of 2019, the S&P ASX/300 Total Return Index returned 10.9 per cent, a number which includes dividend payouts.

    But at the same time its global equivalent, the MSCI World Net Total Return Index in Australian dollars increased by a bigger amount, 11.6 per cent.


    Andrew Main

    This article is the opinion of the author, Andrew Main, and is not financial advice. Speak to your financial adviser or broker for more information. I’m sure they’ll be happy to help you. For the active ETF you are investing in, make sure you always read the Product Disclosure Statement (PDS). To find out more and download the PDS, please visit