Financial market trends
- The mining sector is now the primary driving force behind the Australian sharemarket. In terms of volumes of shares traded in March, mining volumes were double that of a year ago while the number of
industrials shares traded were down by 4 per cent. - In value terms, trading of industrials shares still dominate, but it has fallen in annual terms for the majority of the past year. Mining shares are up 37.2 per cent on a year ago.
- Over the past year the Small Resources index has soared by 25.9 per cent whereas the ASX 100 Resources index has lifted just 9.9 per cent.
What do the figures show and what does it mean?
- Forget about the banks, retailers, media stocks and technology, it is mining shares that are in vogue at present, driving both the volume and value of shares traded on the Australian Stock Exchange.
- In March, $85.8 billion industrials shares were traded, the highest amount since May last year. But in annual terms share trade was 5.1 per cent lower than a year ago. Trading in mining shares is still lower than industrials at $53.4 billion, but it was the second highest monthly total in three years and up a hefty 37.2 per cent on a year ago.
- The value of Industrials shares traded has only grown once in the past nine months while shares of mining shares traded has consistently grown, averaging 24 per cent annual growth.
- In volume terms, trade in mining shares took over from industrials in September last year. In March 2011, 49.5 billion mining shares were traded, up 97 per cent on a year ago. Industrials shares traded in March stood at 32.6 billion, down 4.4 per cent on a year ago. Trading in mining shares took off in August 2009, with annual growth averaging a staggering 80 per cent over the period.
- Over March the All Ordinaries and ASX 200 both rose by just 0.1 per cent. The ASX 100 Resources index was up by 1.9 per cent to the highest level since February 15 2011.
- Interestingly, the biggest Resources companies were most in favour over March; no doubt foreign investors were attracted in response to a weaker Aussie dollar. While the ASX 100 Resources index rose 1.9 per cent in March, the Small Resources index fell by 2.4 per cent. Still, the ASX 100 Resources index rose 9.9 per cent over the past year while the Small Resources index rose by 25.9 per cent. The Small Industrials index rose by just 1.7 per cent.
What are the implications for investors?
- There are two factors that investors need to focus on. The first is China – if investors continue to expect China will grow strongly and suck in resources then they will embrace large and small mining and energy shares.
- The other influence is the Aussie dollar. Whenever the Aussie loses ground, foreign investors come out of the cupboard, embracing large cap shares.
- And herein lies the distinction. Foreign investors must take into account the US dollar price of Aussie shares whereas domestic investors in smaller mining and energy companies don’t need to worry about currency factors – rather they focus on the outlook for individual companies.
- The Small Resources index began to outperform the large cap resources stocks (ASX 100 Resources) in September last year when the Aussie dollar recovered from the European debt crisis. The stronger Aussie proved a real barrier to foreign investor interest.
- Foreign investors own around 43 per cent of all Aussie shares so clearly the value of the Aussie dollar is important in purchasing decisions.
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