December was particularly choppy for shares as emerging markets were rattled by plunging oil prices and developed markets fretted about US interest rates, only to surge once the Federal Reserve calmed the waters. Australia’s commodity-sensitive market was caught in the middle.
As much as investors worried about the end of US quantitative easing this year, global interest rates were restrained by sluggish non-US economic growth, and more quantitative easing from Japan and Europe. Commodity prices, particularly oil, turned out to be the major focus.
Strength in transport, property, healthcare, infrastructure, and some non-commodity industrial companies with US dollar earnings offset falls in resources and related services companies as commodity prices plunged due to burgeoning supply and slowing demand from China.
Heading into Christmas, Qantas had more than doubled in value, Westfield Corporation had surged 43 per cent, Transurban was up 32 per cent, CSL had gained 27 per cent, Brambles rose 16 per cent, Telstra was up 14 per cent and Commonwealth Bank had added 9 per cent.
But BHP Billiton was down 24 per cent after hitting a five-year low last week, while Rio Tinto lost 18 per cent, Santos tumbled 43 per cent and Origin Energy shed 17 per cent.
In the supposedly 'safe' consumer staples sector, Woolworths dived 10 per cent, Wesfarmers lost 5 per cent and Coca-Cola Amatil plunged 24 per cent.
It certainly didn’t feel like a bull market, with the S&P/ASX Small Ordinaries index down 8 per cent for the year. Many smaller companies with good earnings prospects were overlooked as investors focused on large, safe companies with attractive dividends.
The benchmark S&P/ASX 200 was back on the ropes yesterday, falling 1.1 per cent to 5380.9 despite a record high close in the US S&P 500.
Resources led declines in Australia yesterday, with BHP Billiton down 3.5 per cent after commodities slumped overnight.
Brent crude oil fell 2.1 per cent to $US60.09 a barrel, spot iron ore price index slid 1.8 per cent to a fresh five-year low of $US67.90 a dry tonne and gold fell 1.7 per cent to $US1176 an ounce.
While the local market had recovered impressively before month’s end — no doubt boosted by fund managers adding to winning investments and reducing cash levels before the year end — there was no escaping its dismal performance versus offshore markets this year.
The index was up less than 1 per cent for the year versus a 13 per cent rise in the US S&P 500. In US dollar terms, the Australian market was down more than 8 per cent for the year.
Despite vaguely reassuring comments on US interest rates from the Federal Reserve last week, and growing hopes of interest rate cuts in Australia, the local sharemarket was restrained by a shaky exchange rate, fragile commodity prices and instability in emerging markets, particularly Russia.
Australia’s share index had risen 5.3 per cent in the three days since the US Federal Reserve meeting last week, its best three-day rise in two years.
The Fed said it can be “patient” before lifting US interest rates from the current record low.
And while the world’s biggest central bank removed a previous reference to the likelihood that it would keep its zero interest rate policy for a “considerable time” after the end of quantitative easing in October, it said its latest utterance was “consistent” with its previous guidance on rates.
A bounce in oil prices also helped calm nervousness this week, albeit briefly.
Brent crude jumped 3.6 per cent last Friday, its biggest one-day rise in more than two years, after Saudi Arabia’s oil minister, Ali al-Naimi, described a 50 per cent plunge since June as “temporary”.
No doubt the extreme measures adopted by the Central Bank of Russia played a part in calming global markets in the past week, and events in Russia and Ukraine could strongly influence commodity prices, emerging markets and Australia’s resources sector next year.
Australian shares ended a six-day losing streak a week ago as the Russian rouble bounced off a record low after the Central Bank of Russia raised interest rates.
This article was first published in The Australian. Reproduced with permission.