Even before the bank-led sell off of today, the ASX 200 was doing badly. For the quarter to 31 March, it underperformed the US S&P500 by -4.8%, with the US index finishing up .8% against a fall of -4.0% locally.
In our view, the (global) weakness was not just on concerns about the companies themselves, but also because of second-line issues such as higher default rates in junk-bond portfolios and among the banks which are lenders to the resources and energy sector.
This chimes in with our longish comment piece in the Financial Review’s Boss Magazine which looked at ten Australian portfolio managers and found that they mostly held the same stocks (the aforesaid banks), and in pretty much in the same ratios. There is nothing necessarily wrong with this, but the very high concentration there and in resources stocks might not be the best bet for the coming few years (even after the poor performance to date).
Separately, we noted the strength in Google’s numbers (they are still growing like a foal unicorn) in a piece on Livewire. Quarterly consolidated revenue was up 24% in constant currency to US$21b. Operating profit was US$6.7b – up 55% from US$4.36b (excluding the moonshots).
Whatever the case there, our portfolio had a much better few weeks, and if the US dollar improves it will now be within striking distance of the highs of last year. So it looks like the worst is behind for us, for a time anyway.