LDB’s quarterly share market review: Second quarter 2017

The Australian share market performed quite strongly in the second quarter of 2017, off the back of a number of major events, according to LDB senior financial planner Tim O’Loughlin.

The global perspective

During the last six months of the 2016-17 financial year, there was a fair bit of volatility in equity markets, stemming from fears of a Donald Trump impeachment and political results in Europe.

“We saw the rise in support for the right-wing parties, right across Europe,” Mr O’Loughlin said.

“We also saw a fair bit of volatility off the back of what was happening in the UK.”

The domestic perspective

In Australia, several major announcements following the election created uncertainty within the Australian share market over the past six months.

Mr O’Loughlin said the introduction of the bank levy on the big five banks had affected stocks.

The measure, which was announced in the May budget and introduced in July, is expected to raise more than $1 billion a year in tax from the Commonwealth, ANZ, NAB, Westpac and Macquarie Bank.

“The Australian banks were initially sold off, midway through late April/early May, then towards the end of the financial year, the effect to the banks was a lot more overstated by investors, so we started to see the banks’ share price improve,” Mr O’Loughlin said.

Concerns over rising house prices also impacted investors, and there was debate about whether the growth in the Australian banking sector could continue, should the housing market stagnate or trend negative.

“The dividends and the income to be received from banks are still likely to be strong, in the order of probably an 8 per cent yield (inclusive of franking credits),” he said.

“However, we certainly don’t think the growth from the Australian banking sector is going to continue.”

Mr O’Loughlin said towards the latter end of the 2016-17 financial year, the resource stocks performed well – BHP, Rio Tinto, Fortescue all had strong returns.

There were also quite strong returns from the materials sector (Orica and BlueScope Steel, for example).

“The health sector has been a bit hit and miss,” he said.

“There have been a number of strong performers that have continued to deliver really strong returns over the past number of years (for example CSL and Cochlear).

“(However), a number of the smaller health care stocks had mixed results, predominantly due to company-specific reasons.”