"The real trick in the coming financial year is to recognise that
sharemarkets don't grow at 15 per cent plus every year. The average of
the past two years is closer to 18 per cent, so external economic shocks
and pure speculative greed are the greatest risks going forward."Business Sunday this week also tells you how all the markets fared during the last financial year.
ROSS GREENWOOD: There's no doubt it's been a great financial year, one of the
best. Two year stock market returns are now more than 35 per cent but
the big question is, can it last?
Well, the All Ordinaries Index this year was ahead 19.8 per cent…
Toss in the dividends and the total is around 24 per cent. Now, of
course, it was led by miners and energy stocks but the whole market took
on fundamental value late in the year when yields fell well behind
interest rates.
And the year though was really about whether oil prices would impact on
the economy. Oil was ahead 54.7 per cent or more than $US20 a
barrel. Slowing international economies that were growing quickly out of
the downturn. Oil's big rise in turn pushed up the price of all energy
including coal.
So it's little surprise to find that the best performer of the top 200
shares was Excel Coal, up 182 per cent. Its Hunter Valley and Illawarra
mines, a booming coal price and expanding resources have been nothing
short of a fantastic story.
But, at the other end of the scale, the worst in the top 200 is Chemeq,
a company into animal pharmaceuticals that's seeking alternatives to
antibiotics — it's price is down 75 per cent after a make or break
funding deal with the Japanese Bank, Mizuho. Now the market's really
given a thumbs down to its prospects.
But the strange thing about a bumpy year is that mid-year everything
just seemed to grind to a halt.
Fears of rocketing wages prompted the Reserve Bank to put up interest
rates and to issue a warning that stopped the property market cold and
department store sales.
But oil soothed the stormy seas, its effect negated tax cuts and eased
tension on interest rates.
As it turns out money market rates are now just a quarter of a per cent
ahead of where they were a year ago.
Watch however, with caution, the nine consecutive monthly increases in
US interest rates, it will eventually place a drag on the US and perhaps even
the global economy, slowing the returns from the past year.
The US deficit problems caused the greenback to fall, leaving our
currency a bit all over the place. The doomsayers say it's vulnerable
because of our own trade deficit but it's clearly not so poorly valued
to drag the economy down.
The real trick in the coming financial year is to recognise that
sharemarkets don't grow at 15 per cent plus every year. The average of
the past two years is closer to 18 per cent, so external economic shocks
and pure speculative greed are the greatest risks going forward.
Already some technology and mining shares are regaining characteristics
of their 1999 over-valuations, so it will be interesting to see whether
investors truly have learned any lessons.
