What a disappointing year it has been for investors, particularly for shareholders.
A recovery of sorts appeared to be under way when the market almost touched 5000 points, as measured by the S&P/ASX 200 index in April.
But in the second half of the year, trading was constrained to a range of between 4000 points and 4500 points. The market is about 5 per cent lower than where it started the year.
Any prospect of a sustained recovery in shares has likely been put off for even longer now that the euro zone is almost certainly in recession. That is bad news not just for those holding shares directly.
A poorly performing sharemarket leads to poorly performing superannuation funds because shares are the biggest investment of default funds, where most people have their super.
It is hard to see how share returns can improve next year when so much uncertainty surrounds the euro zone debt crisis. Speculation on recession in Europe could unsettle markets, even if the Europeans come up with a credible plan to get government debt under control.
Now the turmoil in Europe has been compounded by the spectre of recession, speculation over the consequences for global economic growth will intensify. The Australian sharemarket is regarded by global investors, such as pension funds, as a resources play, so lower global growth and commodities prices will force them to reduce their exposure. That is already happening to some extent because the high Australian dollar makes our shares expensive for foreign investors.
All this is swamping the relatively good news on economic growth and corporate profits.
Big companies such as Telstra and the banks are paying cash dividends of 6 per cent to 9 per cent, even more with their franking credits. Some sectors, such as retailing, are struggling but by most measures share valuations are low.
Do not assume the recovery, when it eventually comes, will be a rerun of the bull market in shares between the early 1980s and 2007.
The trend towards low inflation and interest rates that was mostly behind the bull market (as well as companies and individuals loading up on debt) was a one-off.
Investors focused on the rising prices of their shares. The income the shares paid became immaterial. In all likelihood, the game has changed. Investors will be much more focused on the income that is generated as they expect only fairly modest capital gains over the longer term. The swelling ranks of retirees in developed countries can be expected to help drive this trend as they favour investments with good income streams.