US stocks lower, oil falls 4%, iron ore and copper lower - ASX futures down 53 points

Not a great night for equities and commodities, with aluminium, zinc and tin the exceptions. WTI crude oil dipped below US$40 momentarily before recovering slightly to be trading at US$40.18 as I write. It's fascinating to watch financial market themes develop, switch and intensify from week to week. The past couple of weeks have been characterised by a deep focus on commodities and as the amount of commentary and research compounds, so too does the weight of trading in these markets and thus prices have been volatile. I have little doubt that the theme of the day will switch back to US interest rates late next week as we approach Fed rate hike territory (15-16 December), and some relief will be felt in crude and metals, but on a 30-day rolling basis iron ore & copper are down 16.91% & 12.14%, WTI & Brent crude are down 14.56% & 13.75%, and US dollar spot silver & gold are down 9.18% & 7.09%. Interestingly the materials sector of the ASX 200 constitutes only 12% of the index's total make-up, compared to 48% for financials. 

In response to a client query the other day I made the comparison between the ASX/S&P 200 and the S&P 500 to point out the vast differences between the two indices, given how often they are so often compared with each other as a proxy for the health of the two 'listed economies.' With nearly half of its value made up by finance names, and the other half being significantly influenced by the sentiment created by the health of those finance names, Australia's economy--as far as share investors often view it--is probably a little less scary than one might think when we so often think of our nation's economic health in terms of our raw materials export dependence. On the other hand, we're overly dependent on the health of our finance names (chiefly the big four) when seeking reassurance from the sentiment associated with a 'rising index.' 

You can see from the comparison below that our close neighbours in New Zealand enjoy the potential for far more diversified government revenues and shareholder returns, with their top 60% of the market made up of four sectors compared to our two, and a similar pattern in the USA.

While the problem this presents for the Australian government--corporate taxes make up about 20% of government revenues--lies in its concentration of income, the average share investors should view it very differently. You are neither forced to invest in, nor have your sentiment driven by, the state of such a skewed index as the ASX 200. If you are invested in a fund that tracks or bases the success of its performance on what the ASX 200 does, you might want to have a think about where you choose to park your money. The Rivkin Local Model Portfolio has a total combined holding (excluding debt instruments) in financials and materials of 23.6%, made up of 5.5% in materials and 18.1% in financials. This is a statistic that highlights the difference between the way Rivkin views the world and the way someone overly influenced by what they're told on the news every morning views the world. So if you'd like to worry a little less about the 'Armageddon' of falling commodity prices and bank profits, follow the Rivkin Local Model Portfolio!

Source: Rivkin, S&P

To view the Rivkin economic calendar and Global Markets matrix, members can click here.

This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3600.

Complex product warning

This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
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