Tracy Lee and James Chessell
SHAREMARKET investors had little to cheer in 2010 as the benchmark index closed down 2.6 per cent.
New data also revealed that Australians are holding back a record amount of cash.
Bank stocks and beaten-up industrials led by Telstra dragged down a brighter performance during the year from resource stocks leveraged to China’s voracious appetite for commodities.
As an asset class, equities failed to inspire — the S&P/ASX 200 index, which tracks Australia’s largest 200 listed stocks — closed out the year 2.6 per cent lower yesterday at 4745 points.
In contrast, commodities provided most of the action, with the Thomson/Reuters CRB index — which represents a basket of 19 traded commodities — up 15.4 per cent for the year.
For those fearful enough to trade cash for bullion, it was a great year to be long gold with the precious metal returning 28 per cent in its record-breaking run to end the year at $US1408 an ounce.
Perhaps not surprisingly, new figures from the Australian Prudential Regulation Authority show a startling $1.34 trillion held on deposit with financial institutions. This was 63 per cent higher than before the global financial crisis of 2008, when sharemarkets collapsed.
Unless you were fortunate enough to hold a portfolio of junior mining stocks (the Small Ordinaries index jumped 10.2 per cent), there were few standouts or safe havens. Even the big banks could not provide much respite.
Banks make up the second-largest component of the benchmark index and the sector recorded the worst performance, down 9.2 per cent. Of the big four, only ANZ (up 3 per cent) recorded share price appreciation over the year, with Westpac (11.4 per cent), CBA (6.3 per cent) and NAB (12.5 per cent) all lagging the benchmark index.
Even when dividends were taken into account, only ANZ was ahead of the average.
On a positive note, analysts expect the sector to provide fully franked yields of about 6.5 per cent in 2011.
Regulatory concerns also cruelled one of the country’s most widely held stocks, with Telstra’s 1.3 million shareholders suffering an 18.6 per cent decline over the year as the federal government’s National Broadband Network prepares to take over its fixed-line monopoly and offer faster broadband.
As expected, the sectors providing most of the upside were tied to mining and resources. Resources stocks within the benchmark index climbed 8.9 per cent for the year, a performance that was only beaten by the broader materials index, which rose 10.2 per cent.
Reflective of Australia’s two-speed economy, retailers continued to suffer from poor consumer sentiment across the nation. According to CommSec, consumer durables and apparel fell by 19 per, while retailing fell 17.6 per cent.
Consumers kept their wallets shut in 2010 and APRA’s monthly banking statistics showed generous interest rates attracted Australians in record numbers. Deposits grew by $21.5 billion in November alone, up 1.6 per cent on the previous month.
The battle for retail deposits and widespread consumer concerns about the economic outlook sparked a savings rush, with the nation’s $1.342 trillion in deposits higher than the $1.238 trillion at the start of the year.
Indeed, investors who took advantage of interest rates of more than 6.5 per cent in recent months may have beaten the sharemarket.
But a tough 2010 should mean a big comeback in 2011, with experts predicting returns of up to 20 per cent for the benchmark index.
Deutsche Bank’s Tim Baker and Merrill Lynch’s Tim Rocks both predict the benchmark index could end 2011 at 5500, while others target levels as high as 5700.
These targets may appear ambitious, but they are mainly based on the sharemarket’s price to earnings level of 12 times being at near historical lows, meaning the market is cheap.
The experts argue that a market re-rating to a PE level of 13 or more is all that is needed to deliver the predicted gains.
This would make equities the preferred asset class, says CommSec chief economist Craig James, who is predicting sharemarket returns of 15 per cent compared with property at 8 per cent and bonds at 5 per cent.
The sectors that are set to benefit this year include resources, financials and some consumer discretionary stocks.
In spite of the good run that commodity prices have already had, Deutsche Bank’s Tim Barker believes there will still be value in 2011 for miners. “Valuations for mining stocks have tracked higher in recent months to reach 10 to 11 times, which is in line with commodity boom averages,” he says.
“However, we view some of this re-rating as anticipating earnings upgrades, given where commodity prices are currently trading. As such, we still see value in the sector.”
Goldman Sachs equity strategist Chis Pidcock says increasing demand for bulk commodities has been a theme that will carry through to 2011 and that stocks leveraged to volume and not necessarily price will benefit. He identified Orica, Asciano and OneSteel as ones to watch.
Banks will also provide good value this year, says Deutsche’s Mr Baker, who argues their 20 per cent discount as compared to industrials is probably overdone.
One negative that will continue to destabilise the market this year is political uncertainty.
Merrill Lynch’s Tim Rocks notes this will be most telling for stocks in healthcare, gaming, telcos and banks.
Mr Rocks’ preferred large company stock picks for the year include Macquarie Group, Stockland, Asciano, Downer, News Corporation and Woodside.
How did Australia fare against the rest of the world?
The 2.6 per cent sharemarket drop compared poorly with the strongest sharemarket in 2010 of Sri Lanka, up 95.4 per cent after years of civil war came to an end. Sri Lanka’s gain was followed by Estonia at 72.6 per cent and Ukraine at 69.2 per cent.
However, the ASX 200 did not perform as poorly as the Greek stockmarket, down 35.2 per cent.
Developed Western markets were mostly in the positive zone. The US Dow Jones index was up 10.9 per cent, London’s FTSE up 10.3 per cent and the German Dax up 16.1 per cent.
Yet the Aussie dollar was the second-strongest of 120 global currencies in 2010, up 11.7 per cent against the greenback and beaten only by the Mongolian tugrik, up 14 per cent.
Indeed, the ASX 200 performance was not as bad if you put it in US dollar terms, rising some 15.82 per cent, compared with a 13.44 per cent rise in the MSCI All Country World Index.
Source: www. theaustralian.com.au
