ASX good value?

[Pom]

I know that you shouldn't buy the market and should look for value in individual shares (much like property), but I was looking at the relative performance of share markets around the world and noticed quite a wide discrepancy in relative performance since the GFC.

Looking at current share prices compared to their peaks in late 2007, the ASX is one of the worst performers in terms of recovery with only the Nikkei fairing worse:

Nikkei: -48%
ASX: -37%
HSI: -28%
DAX: -14%
FTSE: -12%
S&P500: -12%

The result feels counter intuitive - China and Australia are in better economic shape than Europe / US yet their share markets appear to have rebounded most effectively.

Any economists out there able to put forward a hypothesis as to why? Is the ASX likely to recover in a similar manner to the US / Europe and therefore represent good value in relative terms? Should we be stocking up? (Pardon the pun).

Is the ZIRP / low IR settings in the US and Europe enough to explain the difference?

 

[Mr. Fabulous]

Pom, the only honest answer anyone is going to be able to give you is 'I have absolutely no idea.'

But don't worry, plenty of people will wax lyrical in this thread pretending they know what they are talking about.

 

[Crabnet]

There are quite a few things that you would need to take into consideration when comparing indices.

The ASX has fully franked dividend stocks which would increase the return above what the basic statistics show.
The Aussie dollar has risen as a result of all that money creation in Europe and the US so from their perspective the overall exchange rate adjusted difference would be less.
Our market is heavily weighted by financials and resource stocks. We don't have the equivalent tech sector comprising Apple, Intel and Microsoft, etc. which have performed rather well of late.
Perhaps the US and European markets are irrational.
I know Aussie brokers are observing how little volume is being transacted on the ASX lately as buyers stay out of the market because of political uncertainty.

 

[Intrinsic_Value]

There are quite a few things that you would need to take into consideration when comparing indices.

The ASX has fully franked dividend stocks which would increase the return above what the basic statistics show.
The Aussie dollar has risen as a result of all that money creation in Europe and the US so from their perspective the overall exchange rate adjusted difference would be less.
Our market is heavily weighted by financials and resource stocks. We don't have the equivalent tech sector comprising Apple, Intel and Microsoft, etc. which have performed rather well of late.
Perhaps the US and European markets are irrational.
I know Aussie brokers are observing how little volume is being transacted on the ASX lately as buyers stay out of the market because of political uncertainty.

Your points pretty much sums it up
(a) higher dividend payout ratio in the Aus market
(b) currency
(c) political risk with the current federal government
(d) composition of our index

and i would add one more
(e) interest rate differentials, at 0%-1% interest rates, overseas equity markets look relatively attractive compared to government debt. Our interest rates are much higher.

 

[oracle]

Your points pretty much sums it up
(a) higher dividend payout ratio in the Aus market
(b) currency
(c) political risk with the current federal government
(d) composition of our index

and i would add one more
(e) interest rate differentials, at 0%-1% interest rates, overseas equity markets look relatively attractive compared to government debt. Our interest rates are much higher.

There are quite a few things that you would need to take into consideration when comparing indices.

The ASX has fully franked dividend stocks which would increase the return above what the basic statistics show.
The Aussie dollar has risen as a result of all that money creation in Europe and the US so from their perspective the overall exchange rate adjusted difference would be less.
Our market is heavily weighted by financials and resource stocks. We don't have the equivalent tech sector comprising Apple, Intel and Microsoft, etc. which have performed rather well of late.
Perhaps the US and European markets are irrational.
I know Aussie brokers are observing how little volume is being transacted on the ASX lately as buyers stay out of the market because of political uncertainty.

All the above plus you have to remember stock markets look 12-18months ahead. The top 10 stocks in ASX (miners and banks) earnings estimates by analysts are not expected to grow much for 2012-13 from their current earnings. So our stocks are not trading at premium. Investors pay a premium for growth which unfortunately our top 10-20 companies don't seem to be able to achieve in the medium term.

Possible factors are conservative consumer, saturated market, high aussie dollar, lack of political will to instill confidence in business community to take on risk, Europe etc. etc.

Cheers,
Oracle.

 

[Pom]

All the above plus you have to remember stock markets look 12-18months ahead. The top 10 stocks in ASX (miners and banks) earnings estimates by analysts are not expected to grow much for 2012-13 from their current earnings.
Oracle.

Are European and US investors expecting higher growth than Australia? I'd have thought there was more downside risk in those economies. I do note the point about composition of the index though and that the ASX is heavy on resources and finance.

That said, what about the FTSE? It peaked at roughly the same metric (6750) as the ASX, came off marginally less than the ASX but is now trading at just a 12% discount from its 2007 peak. FTSE is heavy on finance as well and last I looked, UK banks weren't tracking too well.

As a comment, it very much feels as though this country is determined to talk itself into a recession. The papers are constantly reporting jobs being "slashed" but I note that unemployment fell to 5.1% - effectively full employment.

The term used to be whinging Pom. I think it should now be whinging Aussie. You guys don't appreciate how bloody good you've got it compared to the rest of the world. I blame Abbott and his wrecking ball style of politics.

In any event, i've put about $100k into shares over the past 2 months so we'll see how she goes!

 

[Sunfish]

In any event, i've put about $100k into shares over the past 2 months so we'll see how she goes!

Tell me they weren't bank shares, Please!

 

[Pom]

Tell me they weren't bank shares, Please!

$20k of NAB.

 

[Mr. Fabulous]

He told you not to tell him that.

 

[Sunfish]

He told you not to tell him that.

I wish he didn't!

 

[Value Emperor]

When a countries currency loses value, it's share market should increase, simple as that. Reason is the net assets are worth the same on a global measure, but translated into the domestic currency the assets would appear to increase in value.

Do the calcs for a company that owns 100 caterpillar earthmovers and nothing more in 2 different countries one in the USA and the other in oz. the share price of the one in USA would have increased by the same % as the audusd would have declined.

You can the see this correlation by looking at a chart of the Djia vs allords vs audusd.
I' d suggest there is no 10% mispricing that we mere mortals could exploit.

Btw I like the responses given so far. I was also half expecting all sorts of wild forecasts about how there are massive opportunities by going long aus market and shorting the USA, so I'm pleasantly surprised.

 

[Pom]

He told you not to tell him that.

Good job I didn't mention the $30k of ANZ then.

 

[redwing]

Now you're just winding him up

 

[Intrinsic_Value]

Good job I didn't mention the $30k of ANZ then.

i'm giving serious thought to buying back into ANZ, i was skeptical at first, but i think their plan to become a regional player might be working.

They are also the only one of the big 4 with a different strategic setting, by becoming an Asia Pacific regional bank.

All the others are essentially Australian focussed (NAB has some overseas businesses, but its (a) poor being in the UK, and (b) their bread and butter is still Australia/NZ)

My bank exposure is just 5% (being NAB) together with indirect banking being Mortgage Choice (5%) against the index weighting of 20%+, so lots of room to move.

 

[equitymate]

Hazard a guess the central bank printing press has been alot more active in some of those markets that have outperformed us.

 

[Edge7]

ASX Good value?

It all depends on Europe. The ASX is sitting on the fence.
If/when their is a resolution in Europe, I think the ASX would be at 5,200 quick smart.
If it spins out of control, the ASX will be at 3,200 even quicker.

 

[Pom]

ASX Good value?

It all depends on Europe. The ASX is sitting on the fence.
If/when their is a resolution in Europe, I think the ASX would be at 5,200 quick smart.
If it spins out of control, the ASX will be at 3,200 even quicker.

I don't have anything to base this on but it "feels" as though the current market price has a lot of the downside risk already priced in so I don't see the ASX plumbing new depths even if europe goes south.

Thats why it seems good value to me at the moment.

But what do I know.

 

[Deltaberry]

Some sectors are good value. You want to pick the next runners.

Some major runners recently has been oil and gas, like Aurora and Senex Energy. I remember looking at Senex Energy only middle of last year and it's gone up nearly 4x already.

Coal has had major mergers and acquisitions activity. Now that all coal is foreign-owned nearly, the next question is which commodity will go off next?

I think if you tried to spot sectors like this, you'll find much better value. I am not convinced big fat blue chips like big 4 banks are "good value" though of course this is all a risk-reward choice too, though how true is that when ANZ has fallen from $33 to $12 and is only $21 now? Low risk? Hardly. I could've held a portfolio of mid caps with limited knowledge of shares and in general done much better.

 

[Sunfish]

Some sectors are good value. You want to pick the next runners.

Sounds like going out to pick up shells as the water recedes just before the tsunami hits.

Stay safe.

 

[Deltaberry]

I'd venture to guess there's a good 5-month window from now.

I think in these sorts of markets one can afford to punt, as long as they are disciplined and prepared to get out without picking the top (or in some people's cases, with only a small loss).