Real Estate Features Banks Getting Beaten

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Omicron took the lead in the Australian equity market in November, leading it to end with a small loss of 0.9% or a decline of 0.5% after the inclusion of dividends. However, since the start of the year, it still comes down to a good 14.1%. Roll on the bull market!

If we look at the industry sectors, the most interesting performance was that of the real estate sector, which is mainly composed of listed property investment funds. It returned 4.3% in November and added 17.7% from the 2021 schedule.

Industry Sector Reports

Source: S&P Dow Jones

Due to the covid, many had written off commercial office buildings and shopping malls. The two permanent changes resulting from the lockdowns – an increase in people working from home and shopping online – are expected to stifle appraisals and rents, with landlords facing higher vacancy rates. And while vacancy rates have gone up, that hasn’t translated into lower valuations, as mostly foreign buyers have made aggressive offers for commercial properties.

Dexus and GPT, the two largest diversified commercial real estate groups, are both up more than 17% this year. Malls Australasia Property is up 10.2%, while Westfield malls owner Scentre Group is up 11.1%.

The real stars have been the groups that have invested heavily in industrial property and logistics warehouses. Goodman Group, which is now the largest real estate company by market cap on the ASX, is up 30.6% while Charter Hall added 31.3% in 2021.

Communication services are another “star” sector. Dominated by Telstra and the REA group (realestate.com), the sector is the best performer on ASX with a total return of 31.6% for the eleven months to the end of November. Telstra, which started the year at $ 2.98, closed the month at $ 4.07. With dividends of 16c per share, that brings the total return to 41.9%.

ASX’s largest financial sector by market capitalization, which accounts for nearly 30% of the S & P / ASX 200, returned 20.1%. This despite a sharp drop of 6.9% in November following disappointing earnings reports from CBA and Westpac. Both showed the impact on net interest margins caused by borrowers switching to low margin fixed rate home loans.

Resource stocks are largely in the dark, despite the mid-year drop in iron ore prices from US $ 220 per tonne to less than US $ 90 per tonne. But with the price starting to stabilize at around US $ 100 per tonne, boosted by news from the world’s largest producer, Brazilian miner Vale, that it was reducing its production forecast for this and next year, the majors of the iron ore rose in November. The materials sector, which also includes gold mines, packaging companies, steel companies and construction material suppliers, recorded the best monthly gain of any sector in November at 6.3%.

The laggards in 2021 are the two smallest sectors of ASX, utilities and energy. Both have felt the impact of investor sales due to ESG (environmental, social and governance) concerns. Energy is the only sector in the red with a negative return of 1.7%, which is somewhat surprising given that the underlying benchmark price of crude oil is higher than in 2021.

And despite a very strong lead from the United States, where the information technology sector is up 29.1% in 2021, the Australian local sector shows a meager return of 3.3%. The larger and more comprehensive S & P / ASX All Technology index is more favorable with a gain of 8.6%.


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