Rudi’s View: A Tough Market, A Different Cycle

Rudi's View | 10:00 AM

With only one week left before the world gleans at the outcome of the US midterm elections, investors are crowding into large cap defensives on the ASX.

By Rudi Filapek-Vandyck, Editor

I briefly spoke to two active investors this week.

The first told me: "It's probably not ideal, but I've stopped looking at my portfolio. I simply can no longer bear it."

The second (with a sigh): "It's a tough market out there."

With October drawing to a close this week, the ASX200 is up around 1.5% year-to-date, excluding dividends, but beneath the surface, the picture looks a lot more polarised.

The local All-Tech index, for example, is down -16.36% since the start of the calendar year. The Small Ordinaries has retreated by -17.90%.

From my own observations, there are bright spots out there: shares that sprang to life in September as bond yields peaked and institutions started preparing for the end of RBA tightening.

Think Wesfarmers ((WES)) and Telstra Group ((TLS)), but also ResMed ((RMD)), Pro Medicus ((PME)), Aristocrat Leisure ((ALL)) and Charter Hall ((CHC)), among others.

Equally important: offshore investors are once again looking at Australian equities as the popular, and until recently seemingly unstoppable, AI trade has become a less straightforward proposition.

Resilient Australia Outperforms

The Australian market stands to benefit from a loss of worldwide enthusiasm for the AI trade, but it's anyone's guess whether the October blues for offshore AI equities have a much longer runway ahead.

As most investors and local commentators tend to focus on US markets, it may come as a surprise that the ASX has been among the better performers in recent weeks.

Mainland China's indices have fallen by between -11% and -17% over the past two months. Hong Kong's Hang Seng index has lost almost -10%.

Japan's Nikkei 225 has retreated by -5.5%, the French CAC40 has lost -6.6% and Germany's DAX is down by more than -4%.

Despite considerable volatility beneath the surface, US indices have held up remarkably well.

The Australian market, at face value, has largely matched that resilience, despite BHP Group ((BHP)) shares and the Materials sector at large succumbing to profit-taking and sector rotation.