Sell in May and Go Away?

by Raymond Chan

What happened?
Over the month, HK H shares +24%, Shanghai +19%, Brent Oil +19%, TSE +3.5%, FTSE +3.3%, AUD/USD +2.3%. ASX 200 was just +2.2% but still better than S&P 500 which was +1.5%
Global markets advanced this week on rising oil prices and the proposed takeover of BG Group by Royal Dutch Shell, sparking a rise in oil and gas shares as investors speculate on oil industry consolidation. US stocks were slightly choppier with some early quarterly earnings results disappointing investors.
European shares continued their surge with a strong recovery from Europe’s auto sector and robust German data. Australian shares traded mostly higher through the short week on higher oil prices, although the RBA decision to keep the cash rate on hold put pressure on key financial stocks.
In Asia, Chinese stock markets rose to a 7 year high this week as government stimulus spending and monetary easing was announced.
ASX 200 valuation has downgraded to 5,800 points, post reporting seasons
There are many factors influencing the direction of ASX 200 but one factor explains 80% of ASX 200 monthly movement – It’s the fundamental valuation.
To simply put, the higher the reported earnings, the higher the ASX 200 shall worth.
Our strategist Michael Knox this week downgraded the ASX 200 valuation from 6,150 points to 5,800 points. The downgrade was due to lower than expected reporting earnings (especially Resource & Energy stocks) during reporting seasons.
On Friday, the ASX 200 was closed 5,968 points which makes it 0.6% standard error too expensive. Usually, we do not consider the market to be “outright sell” unless it hits over 1% standard error too expensive (or 6,200 points in our case)
The valuation could go higher with higher reporting earnings in August reporting seasons but for now the consensus is still looking for earning downgrades for the rest of 2015.
Fundamentally speaking, we feel that the market is moderately expensive.


Information/strategies/trading ideas in this blog is provided for general information purposes only and is not intended as an offer to enter into any transaction. Information contained in this blog is not necessarily complete and its accuracy cannot be guaranteed. Information/strategies/trading ideas here have been prepared without consideration of the investment objectives, financial situation or particular needs of any individual investor. Before a client/investor/reader makes an investment decision, a client/investor/reader should, with or without RBS Morgans' or the author’s assistance, consider whether any advice contained in this blog is appropriate in light of their particular investment needs, objectives and financial circumstances. It is unreasonable to rely on any recommendation without first having spoken to your adviser for a personal recommendation. The use of options may not be suitable for all investors. Potential investors are recommended to seek professional advice before embarking on any strategies mentioned in this blog. The information/strategies/trading ideas contained in this blog have been taken from sources believed to be reliable. Neither the author nor RBS Morgans Limited represent that the information is accurate or complete nor should it be relied upon as such. Any opinions expressed reflect the author’s judgment at this date and are subject to change and is not necessarily that of RBS Morgans'. RBS Morgans and/or its affiliated companies may make markets in the securities discussed. Further, RBS Morgans and/or its affiliated companies and/or their employees from time to time may hold shares, options, rights and/or warrants on any issue included in this blog and may, as principal or agent, sell such securities. The Directors of RBS Morgans Limited and Grosvenor Sydney office advise that they and persons associated with them may have an interest in the above securities and that they may earn brokerage, commissions, fees and other benefits and advantages, whether pecuniary or not and whether direct or indirect, in connection with the making of a recommendation or a dealing by a client/investor/reader in these securities, and which may reasonably be expected to be capable of having an influence in the making of any recommendation, and that some or all of our representatives may be remunerated wholly or partly by way of commission. Information in this blog is proprietary to its author and may not be copied as your own or used for any other purpose without the prior written consent of the author. RBS Morgans Limited (ABN 49 010 669 726 AFSL 235410) A Participant of ASX Group Principal Office: Level 29, Riverside Centre, 123 Eagle Street, Brisbane QLD 4000

Subscribe to our Daily Newsletter?

Would you like to receive our daily news to your inbox?