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Defensive stocks come to the rescue in October

Some of the most expensive sectors on the Australian Securities Exchange were the hardest hit during last month’s sell-off, with information technology stocks down 11.3 per cent and energy stocks down 10.3 per cent.

Information technology stocks were up 17 per cent over 12 months leading up to last month’s sell-off. Healthcare stocks were up 20.9 per cent over 12 months before falling 7.3 per cent last month.

Stocks on high price-earnings multiples were underperformers in October: Bellamy’s Australia fell 29.3 per cent during the month, Wisetech Global 27.3 per cent, Bingo Industries fell 23.9, Seek 14 per cent, Treasury Wine Estates 13.6 per cent, Cochlear 11.5 per cent, IDP Education 10.7 per cent, Qube Holdings 10.3 per cent, Resmed 6.7 per cent and CSL 6.5 per cent

The S&P/ASX 200 fell 6.1 per cent in October and the All Ordinaries Index fell 6.5 per cent the market’s worst monthly performance since August 2015.

The local fall was part of a global sell-off in response to tightening US monetary policy, trade war concerns and economic weakness in several emerging markets.

The big local economic story was weaker house prices and slower housing turnover, which may cause weaker consumer spending as sentiment turns down. Sales at department stores and household goods retailers fell in August.

Defensive sectors played their role, doing better than the market overall. Real estate investment trusts were down 3.1 per cent, utilities down 4 per cent and consumer staples down 4.8 per cent.

Among the REITs, Goodman Group, Scentre Group, Investa Office Fund and Vicinity Centres all rose in October.

In a commentary on the market’s October performance, Macquarie Securities says: “In this risk-off environment, it was no surprise to see investors favour sectors with higher earnings certainty, such as gold, healthcare, REITs and utilities.”

Among financial stocks, AMP continued its horror year. The stock fell 22.6 per cent in October, after announcing the sale of some of its wealth management and advice businesses. It has fallen 45.4 per cent over 12 months.

Bank of Queensland fell 12.4 per cent in October, after issuing a financial report that showed its wholesale funding costs were rising and it was losing mortgage market share.