These Six Stocks Reveal a Shocking Truth about the Aussie Economy
Miners and banks continue to hog the limelight in the Aussie market.
That won’t come as a surprise with Australian banking shares making up one-quarter of the total value of the Australian Securities Exchange.
Throw in half a dozen of Australia’s largest mining companies…and close to 40% of the value of the ASX is derived from lending machines and dusty rocks.
Some Aussies like this reputation we hold…a nation built on the back of honest hard work…unearthing the materials the world needs to run.
But as you’re about to find out, the reality is far less sexy…
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Australians are no longer a bunch of labourers toiling away under the blistering sun. Barely 2% of the Aussie workforce is linked to the mining sector.
Nonetheless, some 240,000 mining-industry employees are responsible for the total mine output, accounting for roughly 45% of exports.
In saying that, mining only contributes 7% to gross domestic product (GDP). Consumption, on the other hand, accounts for a whopping 61% of GDP.
Basically, we’re a nation of shoppers. Mining stocks may move the market, but shopping drives the Aussie economy.
That explains why yesterday’s data dump from the Australian Bureau of Statistics (ABS) didn’t do much damage to the S&P/ASX 200, which fell only 0.63%.
In fact, if anything, I suspect it was the Shanghai Composite — a major Chinese stock market index — falling to its lowest point since March 2016 earlier in the week that dragged the Aussie market down.
In saying that, you should pay attention to the retail trade data and balance on goods and services because they give you an important insight into the Aussie economy.
The balance of goods and services showed that imports rose 4% for May, while exports rose only 3%. This led to Australia’s trade surplus falling from $1 billion to $827 million.
The mining sector barely reacted to the news.
BHP Billiton Ltd [ASX:BHP], Woodside Petroleum Ltd [ASX:WPL], Newcrest Mining Ltd [ASX:NCM] and Rio Tinto Ltd [ASX:RIO] all closed flat yesterday. Each stock closed within two cents of their opening price.
Then there’s the retail sector.
There was good news on this front. Retail spending in May rose 0.4%, slightly surpassing the 0.3% uptick predicted by Bloomberg. In addition, it’s now been three months of consecutive — albeit minimal — growth in the retail sector.
This is key because Australian retail data has disappointed analysts for a few years now. The sector is facing the triple-whammy of a strong Aussie dollar, price deflation and people spending less. Significant growth in retail trading has been hard to come by.
Perhaps the most surprising news from the ABS was that department stores saw the biggest increase in spending, rising 3.9% in May.
Nonetheless, it seems that no one told the markets that retail data was up, and that this was good news.
Major retailers on the ASX all tumbled. Premier Investments Ltd [ASX:PMV], Noni B Ltd [ASX:NBL], Louvisa Holdings Ltd [ASX:LOV] all fell between 1.50% and 2.59% yesterday.
Even Myer Holdings Ltd [ASX:MYR], the barometer for how middle-aged women spend their money, dropped 1.27%.
What does all this mean?
The mining sector didn’t fall when it probably should have. And the retail sector didn’t rally when it could have.
There’s both good and bad news in this…
The good news is that both datasets balance each other out. We are exporting less (the bad) and spending a little more (the good).
The bad news is that what we are exporting is falling quicker than our increase in spending.
That, in no uncertain terms, is a sign of a slowing economy.