Market Commentary – September 2015

by Chris Limberg on Sep 15, 2015

Market Commentary – September 2015

The S&P ASX 200 has fallen 8% since the beginning of the quarter. The September quarter was incredibly volatile with the S&P ASX 200 falling approximately 700 points or 13% from its high in early August. Market volatility can only be described as extreme with daily movements of 1% or more the norm rather than the exception. The major financial themes impacting the Australian market have been the continuing decline of commodity prices, Chinese Growth rates and the expected US interest rate movement. We believe these trends will remain for the foreseeable future and a degree of caution is warranted with current market volatility.


  • The Reserve Bank of Australia (RBA) kept the cash rate at 2% p.a. stating “policy remained appropriate to foster sustainable growth and inflation consistent with the [RBA] target”.
  • The labour market experienced strong growth in July but due to an increase in the participation rate unemployment still rose.
    • Wage growth remains soft and below average over the decade
    • Sydney and Melbourne housing markets continue to outperform the rest of the Australian market
  • The Australian dollar continued its decline slipping 7 cents to hover around $0.70 USDs. Given the weak economic outlook and continued fall in commodity prices the Australian dollar is likely to persist in weakening against most currencies.
  • The headline inflation rate has remained below the RBA target range of 2-3% pa currently 1.5% pa however, this is unlikely to prompt the RBA in cutting interest rates because when volatile items such as the price of petrol is removed inflation is calculated as 2% scraping into the target range.
  • The RBA having cut the interest rates twice already this year remains receptive to further rate cuts but is unlikely to act based on current available information and is expected to wait for material deterioration in statistical trends before moving rates again.
  • The August reporting season’s most interesting feature was the lack of any key themes, usually there are a particular set of companies that perform well due to common elements such as USD exposure.
    • Company profits, dividends or cash levels did not soar nor slump. But in context of the Australian economy this is entirely understandable given its unremarkable performance over the past year.
  • Malcolm Turnbull took over the Prime ministerial ship in September becoming the 5th Prime Minister in 5 years a record only matched by Greece.


  • The US S&P 500 (-8.5%) and Dow Jones Industrial Average (-9.1%) have both fallen during the quarter with pundits anticipating the FED (Federal Reserve System – The US Central Bank) to increase interest rates in September however due to market volatility we are still waiting for the FED to move rates for the first time since 2008.
  • The US economy continues to strengthen with:
    • Above trend growth
    • Household consumption above average
    • Increasing employment
    • Stable inflation
  • FED Chair Janet Yellen remains dovish or biased towards waiting for clear evidence that a rate raise is needed to cool the US Economy. Many commentators predicted a rate rise in September however this has not eventuated due to concern the economy is not yet strong enough to contend with increasing interest rates.
  • US presidential election campaigns have begun for the November 8, 2016 Election. Currently Donald Trump is leading the Republican nomination and Hillary Clinton is tipped to win the Democrat nomination.


  • European economy continues to struggle although growth seems to be improving.
  • Greece remains an ongoing issue with negotiations ongoing and the Syriza Government remaining in power.
  • The Ukraine/Russian dispute continues. Currently the situation has a cease fire agreement in place but both parties are yet to deliver on their promises under this agreement.
  • Russia appears to be flexing its military might in the region with recent actions in Middle East.


  • Growth of the Chinese economy continues to slow with the latest estimates predicting actual growth rate to be more 4 or 5% than 7%.
  • Chinese property has fallen approximately 6% year to date due to oversupply built during the economic stimulus.
  • Chinese Financial Market:
    • The Chinese share market over the last 12 months has had no fundamental justification with some companies valued on a share price to earnings ratio (P/E) of over 150 times. Meaning for every 1 cent the company earns the price is $1.50 making a sharemarket crash inevitable. For comparison a P/E over 25 is considered expensive
    • The Chinese Government is attempting to manage the bursting bubble through rapidly changing regulation
    • Unfortunately this is another case of the mum and dad investors buying in at exactly the wrong time and losing out
    • The likely outcome is a return to pre-bubble share prices with unsophisticated investors losing out and a raft of new regulations placed on the Chinese Sharemarket
  • Fortunately the amount of money invested in the Chinese Sharemarket is relatively small compared to China’s overall GDP (Gross Domestic Product) which should limit the impact on the wider Chinese economy.