Market summary - 31 December 2009 quarter
Consolidating the recovery
The quarter to 31 December saw continuing positive signs of recovery, through consolidation of earlier gains rather than substantial further growth. Domestic confidence was marked by three consecutive interest rate rises, and global confidence was tempered by fluctuating markets and some uncertainty over the financial situation in Dubai.
Equities continued their tradition of a nervous month in October, with markets showing small declines in the US, Europe and Japan – and Australia was not immune. November saw most markets recover their October losses, though the unraveling of the financial strength in Dubai caused some uncertainty late in the month. November also marked the re-entrance to the Australian stock market of leading retailer Myer, which helped lift investor confidence at the time. December ended on a positive note, with the S&P/ASX 200 index showing Australia’s biggest annual equity rise in 16 years.
October, November and December all saw the Reserve Bank of Australia (RBA) lift the official cash rate by 25 basis points, taking it from 3.00% in September to its present level of 3.75%. Governor Glenn Stevens hinted that further increases in the near future were quite possible.
The Australian dollar gained just under 2c against the US dollar in the quarter, finishing at 89.69c. Many commentators have speculated that 2010 may be the first year for the Australian and US dollars to achieve parity since 1983, though it should be noted that it has come close before – most recently in July 2008, reaching 97.86c.
The market movements
- The Australian stock market returned 3.4% (S&P/ASX300 Accumulation Index) over the December quarter. It was a mixed result across the 12 ASX sectors with half posting flat to negative results. Listed property produced the largest negative result with -5.0% and energy
-2.5%. The sectors that contributed positively were materials up 13.9%, consumer staples up 4.7% and utilities up 5.3%. Overall the S&P/ASX 300 recorded a 25.7% return for the financial year to date.
- International stock markets returned 2.1% (MSCI World Ex Australia in $A (unhedged)) and 4.6% on a fully hedged basis. The US stock market posted strong returns of 5.5% for the S&P500 and 7.4% for the Dow Jones index. An improving European economic environment also produced returns of 5.4% for the UK’s FTSE, 3.7% for the French CAC and 5.0% for the German DAX. The emerging markets continued to post strong positive returns with the stand-out market being China’s Shanghai composite index, posting 17.9% following a disappointing September quarter.
- Fixed interest markets continued to post positive returns over the December quarter as improving credit conditions resulted in returns of 1.0% for the UBS Australian Composite Bond Index and 1.1% for global fixed interest via the Barclays Capital Based Aggregate Index (hedged to $A).
- The UBS Warburg Australia Bank Bill posted 0.90% return over the December quarter.
Telstra Super's performance
Accumulation investment returns to 31 December 2009*
* These returns do not apply to Telstra Super RetireAccess members. Further details. Past performance is not a reliable indicator of future performance.
Telstra Super RetireAccess investment returns to 31 December 2009*
* These returns do not apply to Accumulation members. Further details. Past performance is not a reliable indicator of future performance.
A year of recovery
2009 was critical to economies and markets across the globe. It was a year in which the financial crisis could have gone any number of ways. Experts and commentators were unsure what the immediate future held and had varying opinions about how much tighter the grip of uncertainty could get.
With the benefit of hindsight, March 2009 marked the low point of uncertainty and negative sentiment about the future of the financial system. That month saw many markets and investments bottom out, before gaining strongly as the year progressed.
The latter half of 2009 saw markets recover some ground, with global equity markets gaining 50% from their March lows. The S&P/ASX 300 gained 55% since March, for an overall increase of 31% for the year.
The Australian dollar started the year buying 69.68 US cents, and gained just over 20c for the year, finishing at 89.69c after reaching a peak of over 93c in November.
China and India emerged in 2009 as key shapers of future economic growth and investment performance.
China’s annual growth rate has returned to over 8%. China continues to secure stakes in strategic listed companies in Australia and elsewhere, and, in an effort to secure their future resource, energy and agricultural needs, has become one of the biggest investors in Africa.
India’s annual growth rate has returned to over 9%, and that country has a new government, whose election victory was followed by a 17% stock market increase the next day.
These two countries have over 2.4 billion citizens and their combined economies are already equivalent to around 30% of the US economy, and growing fast.
Looking ahead
Australia is performing better than most countries and this is expected to continue. RBA Governor Glenn Stevens said in December that, ‘Growth in 2010 is likely to be close to trend and inflation close to target’. He also commented that there was positive news in Australian employment, which is ‘…now likely to peak at a considerably lower level than earlier expected’.*
Further interest rate rises are generally expected, though whether these have any effect on equity markets is unknown at this stage but will unfold as 2010 progresses.
* Reserve Bank of Australia Media Release, 1 December 2009