InvestSMART's The Monthly Musings - 10 months of green and counting

The ASX 200 rose 1.1 per cent in total returns in July, marking the 10^th consecutive month of gains which equals the record that was set from August 2006 to May 2007.

Over this 10-month period the ASX 200 has gained 28.5 per cent on a total returns basis which is 3.5 times bigger than the average yearly return.

The final little nugget from July’s trading is the ASX 200 hit a new record all-time high three times, reaching a record of 7447 points on the 27^th.

Look at it another way - this strength all took place during the largest lockdown Australia has seen since the start of the pandemic in March last year, with New South Wales, Victoria and South Australia all in lockdown over the month.

The question from here is: how will August perform now that Queensland has joined New South Wales and Victoria in lockdown?

So far, the signs are positive, with August registering four new record all-time highs in

the first 5 days of trading, suggesting the 2006-2007 record could be broken.

But August is the biggest month for listed companies as it is the month full year financial reporting takes place. According to the consensus estimate from analysts, earnings are expected to grow by 11 per cent, slower than the previous year although above the historical average of the last 20 years. But the slowdown does mean stock returns will keep pace with the lower earnings.

Looking to the overseas components in our portfolios, the performance of the S&P 500 remains the standout, up 2.4 per cent in total returns, the strongest developed market. This performance was driven by a solid reporting season in July where over 85 per cent of companies beat estimates. Since January, the S&P 500 is up over 19.1 per cent -- compare this to the STOXX 600 which is up 15.5 per cent, the ASX 200, up 16.4 per cent, and China’s A50, up 0.6 per cent.

The performance of the A50 highlights the risk that are ever present in developing markets. In July, the China market fell nearly 14 per cent on Beijing’s regulatory crackdown and China’s slowing growth. It is also facing its highest level of COVID infection since the crisis began, with 43 Chinese cities under restrictions from the Delta strain. This fall filtered into other Asian markets in July. For us, the market that matters is Japan, which was down 2.4 per cent.  

We also need to draw your attention to something else that is becoming a ‘thing’ in the investment world - “TINA”, which stands for There Is No Alternative. TINA is the term given to investors that are piling into high yielding stocks because there are ‘no alternative’ income assets of significance. Bonds and cash have very low income returns so those investors are turning to stocks. Many companies are using this to their advantage and are showering investors with cash returns. You only have to look at the dividends mining stocks have given over the past few years to see what we mean. We believe the TINA trade will be pushed further in August as companies return cash to shareholders, something you are likely to see in your InvestSMART portfolios in September/October when dividends are paid.

To view the monthly perfromance of our 8 funds please click here: https://www.investsmart.com.au/invest-with-us