05/07/2013 - 07:01

Market strengthens in year of upheaval

05/07/2013 - 07:01

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The Australian share market rose by more than 19 per cent from November 2012 to May 2013, before giving back 11.1 per cent in the subsequent six weeks.

The ASX 200 lifted by 17.3 per cent during 2012-13, with total returns on the All Ordinaries (capital appreciation and dividends) up 20.7 per cent – the best returns in six years. Bond returns were flat over FY13, however. Across the sectors, pharmaceuticals and biotech recorded the largest gains, while consumer durables and apparel experienced the biggest decline.

Major events

• The European debt crisis eased in the early part of 2012-13, after the European Central Bank acted as lender of last resort announcing a bond buying program.

• Stimulus in September: China announces $157 billion worth of infrastructure projects. US Federal Reserve begins open-ended bond buying program (QE3).

• Democrats win US election, providing another boost to share markets.

• US budget sequestration dominates sentiment in late December.

• China tightens policy on property finance in March 2013.

• Cyprus formally bailed out in March 2013.

• Nikkei gains 80 per cent between November-May on Japanese stimulus.

• The US economic recovery gathers momentum; US Federal Reserve discusses exit strategy.

• Reserve Bank of Australia cuts the cash rate from 3.50 per cent to 2.75 per cent over 2012-13.

• China credit crunch in June. Shibor (interbank lending rate) in focus. Policymakers attempt to clean up the ‘shadow banking system’.

• ASX 200 rose 19.3 per cent from November to May and then lost 11 per cent in six weeks.

• The Aussie dollar traded over a near US15-cent range in 2012-13.

Outlook for 2013-14

• We believe the US Federal Reserve will be tapering stimulus over the coming year, and while it will add to market volatility it is unlikely to detract significantly from the US growth profile.

• Chinese authorities will continue to tighten financial regulation. But, as they have shown in the past few months, they are likely to tread more cautiously than in the past with more of a focus on ensuring economic growth remains sustainable.

• CommSec believes that the US economy is going to continue to strengthen over the coming year. The good news is that the housing imbalance is being corrected, US companies are making solid returns and jobs growth is healthy.

• The Australian economy is expected to experience around ‘normal’ growth for 2013-14 of about 3.00 per cent. Activity will accelerate markedly after the federal election.

• Inflation, which has been running at 2.5 per cent through 2012-13 is expected to continue at this mark for 2013-14.

• There is likely to be an added degree of volatility in markets over the coming year. The structural changes in China, a stronger US dollar and resulting weaker commodity prices are likely to keep resource stocks under pressure.

• The RBA will continue to maintain a low interest rate environment and as such asset reallocation from cash to growth assets like equities will remain a strong theme. High-yielding stocks will be well supported. CommSec tips the ASX 200 to be at 5,400 in June 2014 with the $A expected to be around US92 cents.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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