Sell in May and Go Away? | Raymond Chan | Finance News Network

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.

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