Market turmoil: A sector-by-sector guide

The bears seem to be winning, with the sharemarket down for the third day running after the US had its AAA rating cut by Standard & Poor’s and investors fret over the developed world’s ability to maintain growth while addressing their enormous debt loads.

The sharemarket opened 2% lower this morning after closing at its lowest level since July 2009 last week and recording its biggest one-day percentage fall since the GFC on Friday.

Ivan Colhoun, head of Australian economics and property research at ANZ, told SmartCompany this morning that investors were unhappy with the US debt ceiling deal, rising Italian bond yields and the S&P downgrade.

But Colhoun says the downgrade shouldn’t really be a big deal for equity markets, and believes Australia is better-placed than before the GFC to deal with further troubles.

“There are a lot of different factors going in Australia: there’s the two-speed economy, there’s the consumer being cautious and wanting to cut back, you’ve got the mining boom being supportive for some parts of the economy, and then the high Aussie dollar.”

“It’s that whole mixture. It depends very much which sector you’re talking about.”

The mixed data continues for Australia, with the International Monetary Fund tipping 2% real GDP growth this year, growing to 3.5% in 2012 “on the back of strong demand for commodities and private investment in mining and liquefied natural gas.”

“We expect employment to grow at a slower pace than in recent years but the unemployment rate should remain below 5% in 2011 and 2012,” it said.

And on Friday, the Reserve Bank cut its 2011 growth forecast to 2%, from 3.25%, but predicted a very healthy 4.5% growth for next year.

The medium-term picture seems to be a good one. In the meantime, SmartCompany delivers its sector-by-sector guide to the new caution infecting the market.

Advertising and marketing

Advertising and marketing relies greatly on consumer sentiment, and the sentiment so far seems pretty weak, with SMI data measuring ad spend by media agencies showing a 7.2% fall to $638.7 million for the year to June, with magazines and newspaper especially hard hit. Media shares have also been smashed.

Agriculture

Alongside the resources sector, agriculture has been a solid performer over the past couple of years, driven by the increasing wealth and changing food preference of Asia’s middle-class, as well as opportunistic buying by foreign groups.

Notwithstanding the live export troubles earlier in the year, the outlook continues to be positive.

IT and internet

If businesses do start to slow or delay purchasing decisions, IT service providers could be under pressure. Pressure on the Government to return to surplus could also heighten the Government to go a little cheaper on its broadband plans.

Mining

Miners couldn’t shrug off a global downturn, but they would be relatively better placed than any other sectors. Problems for this sector centre on skills shortages and wage increases, as well as Government changes to taxes and the like, rather than demand.

Exporters

The fall in the Aussie dollar is likely to be welcomed by Australia’s exporters, who have seen the attractiveness of their offerings diminish as the local currency climbed well above parity with the US dollar. But cheaper offerings might not be enough when global demand falls as economies continue to struggle with their debt loads and introduce austerity packages, which cut demand.

Financial services

While the Commonwealth Bank of Australia is expected to deliver record profits this week, the golden years of banking are generally considered to be over as house prices remain stagnant, businesses are spooked by cautious consumer demand and regulators clamp down on banks to hold more capital.

Manufacturing

We all know that manufacturing has been in pain for some time, driven by the high Aussie dollar and cheaper labour costs overseas. A fall in the Aussie dollar will obviously help, although the long-term prospects for the sector remain murky, particularly after the removal of its champion, Kevin Rudd. Those that offer a niche product, or food products should be better placed.

Transport and logistics

Transport and logistic companies have battled high petrol prices and low margins for some time. A slowdown in orders will not help.

Tourism

While a slowdown would likely pressure inbound tourist numbers, notwithstanding the lower dollar, it might well encourage Australians to look to skip Europe or the US in favour of something closer to home.

Property

During the GFC, high-end properties were the hardest hit. Most expect the market to remain flat for some time.

Retail

The Productivity Commission has detailed many ways to improve conditions in Australia’s key retail sector, but now we need the political will and patience to see them through. Productivity was identified as an issue; more economic uncertainty will also not encourage people to start spending, particularly if people are worried about their jobs.

Media

Highly linked to the advertising sector, media is very vulnerable to a downturn in the economy, as seen by the share price dives of many companies, including Fairfax.

Telecommunications

Telecommunications demand is expected to remain strong, given the ubiquity of smartphones and gadgets for pleasure and business. But as the NBN rolls out throughout the country, profits and acquisitions will be in focus.