Transcription of Finance News Network Interview with Patersons Securities Resources Analyst, Jason Chesters Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me at ASX Investor Series in Perth is Jason Chesters, Resources Analyst at Patersons Securities. Jason, welcome.
Jason Chesters: Thanks for having me.
Lelde Smits: Jason, the end of the financial year is almost here. How would you rate the performance of the ASX 200 in fiscal 2015?
Jason Chesters: The ASX has performed poorly relative to other international markets, particularly the developed world. At around 0.6 per cent performance in local currency terms, that ranks fairly poorly relative to most of the others. When you translate that into US dollars, the performance unfortunately is even worse. I think it’s around minus16 or minus 17, which in our table of rankings, is the lowest performing market in the developed world.
Lelde Smits: Which stocks or sectors have really influenced that performance over the year?
Jason Chesters: So healthcare and telecoms and utilities for that matter, most of the traditional defensive sectors have performed really well. And that performance has been consistent over the last one, three and five years. And the materials and energy sector and unfortunately, consumer staples as well, have performed poorly. And that again is consistent over all three periods, one, three and five years.
And unfortunately because those sectors also have fairly large weights, particularly when you include financials, which has also performed poorly over one year. When you look at the performance of those sectors and the weights that they have in the index, that’s what’s dragged on the overall performance of the ASX.
Lelde Smits: As a resources analyst, how would you rate the performance of miners as they adjust to the end of the mining boom?
Jason Chesters: I think all the miners in general have been doing the right things. In a difficult market with commodity prices coming off, and investor sentiment fairly poor towards the sector, miners have been doing the right things in terms of focusing on cost out programs. And that is helping the bottom line. What’s also happening is that they’re reducing capital expenditure programs, and that is also helping the bottom line.And then ultimately, the weaker Australian dollar will translate into improved profits, when translated into Australian dollars of course. So that should also help them from a financial perspective.
Lelde Smits: Could you give us some examples of some companies?
Jason Chesters: Sure, most of the majors are following cost out programs. So BHP Billiton Limited
(ASX:BHP), Rio Tinto Limited
(ASX:RIO) clearly are doing that, Woodside Petroleum Limited
(ASX:WPL) as well. So following cost out programs, reducing Capex, all of the other major oils are doing the same thing. So it seems to be a sort of, across the board program that all the companies are following.
Lelde Smits: Looking at the broader benchmark index. What themes can investors expect in the second half?
Jason Chesters: I think stock selection in general is something that astute investors, or astute stock selection is an area that would be rewarded. So investors should focus on that. From a broader sector perspective, those that I mentioned that have performed particularly well over the last one, three and five years, from just purely a PE rating perspective, are starting to perform, certainly above their historic norms. In those sectors, I think stock selection is key.
In some of the other sectors where the underperformance over the last few periods, has now resulted in them presenting an undervalued position, potentially there is more of a general sector performance potential, over the rest of the year for them.
Lelde Smits: Finally, what is your outlook for the following year and what impact do you believe, commodity price fluctuations will have on the market?
Jason Chesters: I think commodity prices in general have already come off quite dramatically. That’s in large part due to I think, the world coming to terms with a slower rate of growth in China and also an overinvestment in supply. That to a large degree I think, is going to permeate throughout the rest of the year. So we don’t really see much in the way of dramatic price increases from most commodities.
There are some exceptions, but in general terms from an Australian and specifically, a WA economy perspective, the key drivers are clearly coal, iron ore, oil and gas. And in those sectors, I think we are near the bottom. I’m not expecting too much more in terms of downside for those.
Lelde Smits: Jason Chesters, thank you for the update from Patersons Securities.
Jason Chesters: Thank you very much.
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