Market wrap: What's next for the ASX All Ords?


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There is an old saying that when the US sneezes Australia catches a cold, however, in recent times this has shifted as China has become increasingly important to Australia, with many companies benefiting from trading with China.

It's no secret that China's real estate sector has been in trouble in recent years after experiencing over 20 years of property growth following the privatisation of property in the late 1990s.

This was driven by urbanisation as millions of citizens moved from the countryside to the city.

asx market wrap

What will Evergrande's collapse mean for Australia and the All Ords?

As demand grew, so did the size of property developers, but the sector became overheated, which caused China's second biggest developer, Evergrande to default on their debt and seek bankruptcy protection in the US.

Australia and China share a close economic relationship, particularly with trading commodities.

Given Australia's role in the China property boom, the news about the impending collapse of Evergrande sent shock waves through Australia with fears that our property market would crash, which, as we know, didn't happen.

Australia is one of the world's biggest exporters of iron ore, and China is the largest consumer of iron ore.

A collapse in China's real estate market leads to a fall in construction, which reduces China's demand for steel and other resources, including coal, copper, and aluminium, which is why the downturn in the Chinese real estate market impacted Australia's mining sector.

Is there more bad news ahead for Evergrande?

With Evergrande back in the news, it is running into trouble trying to avoid a collapse, so is the worst over, or is there still more to come?

I believe it is the former, as China has been aware of the issues with Evergrande and the challenges in the property industry for a long time.

We know that it is always darkest before dawn, so is now the time to look at the ASX-listed companies that might benefit from a resurgent China?

We know BHP and Rio Tinto are major iron ore exporters to China, which means any volatility in China's construction and steel industries impacts their profits. The other companies that are also impacted include Fortescue Metals, South32, Evolution Mining and Sandfire Resources.

Right now, it is important to keep a keen eye on how Evergrande's situation unfolds, as a sharp drop in demand from China could affect our miners and lead to a weaker Australian dollar.

That said, the mining sector and others who export internationally will benefit from a lower dollar. Smart investors will be watching China closely because if the worst is almost over, this could be a time when opportunity knocks.

What are the best and worst-performing sectors this week? 

The best-performing sectors include Energy, up more than 2%, followed by Healthcare, which is just in the green and Consumer Staples just in the red.

The worst-performing sectors include Materials, down more than 2%, followed by Information Technology and Consumer Discretionary, as they are both down more than 1%.

The best-performing stocks in the ASX top 100 include Resmed, up more than 11%, followed by Whitehaven Coal, up more than 8%, and Santos, up more than 4%.

The worst-performing stocks include Evolution Mining, down more than 9%, followed by Newcrest Mining, down more than 8% and Washington H Soul Pattinson, down more than 6%.

What's next for the Australian stock market? 

In stark contrast to recent weeks, the All Ordinaries Index (All Ords) is currently experiencing a second week down. While this may be an early sign that the roller coaster ride of late may be easing, it is too early to tell.

As of writing, the All Ords is just in the red, as are all of the major indices in our market.

While I still believe we should expect further falls, I believe the worst may be over and that the Australian market won't fall much further. The good news this week is that the All Ords has not fallen below the low set the previous week.

With Melbourne experiencing a holiday on Friday, we are unlikely to see that situation change.

As we move into October, many people believe it is the worst month in the market but this is simply not true. Historically, the month of October tends to finish in positive territory, which is why I remain positive about our market overall.

That said, now is not the time to be complacent, especially as we move into the last part of the year, which historically presents the best months for growth in the stock market.

As always, right now anything is possible in these current conditions; therefore, until we know when the current down move is over, I recommend everyone exercise caution.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.