THE sharemarket is on track to deliver its second-worst annual performance in almost two decades after the crisis in Europe, slowdown in America and rising dollar hammered many of the country's largest stocks.
Since the beginning of the year, the benchmark S&P/ASX 200 Index has lost 13.2 per cent in value, or $159 billion, only performing worse in the midst of the global financial crisis in 2008.
Leading the market down have been Qantas (down 40.3 per cent since January 1), financial services outfit Macquarie Group (down 37.5 per cent), iron ore producer Fortescue Metals (down 30.6 per cent) and QBE Insurance (down 25.8 per cent).
BHP Billiton has fallen 22.8 per cent this year and the four major banks have all lost ground. ANZ was the worst performer (down 14.8 per cent). NAB was the best of the banks (down 1.2 per cent).
The market closed yesterday at 4119.8, up 0.43 per cent.
The poor performance in equities has fed through to many superannuation funds, and balanced funds are set to return little to members this year.
"All of the assumptions that people were making at the start of the year, and which fed through to their portfolios, have all proved to be wrong," said Tim Rocks, an equity strategist at Merrill Lynch.
He said that 11 months ago investors thought domestic economic conditions would improve, the US would recover from a period of anaemic growth and Europe's debt concerns were over.
But the local economy contracted in the first three months of this year, down 0.9 per cent, and since then has grown by 1.2 per cent (to the June quarter). The US economy expanded 2 per cent in the third quarter, and sovereign debt woes in Europe continue to weigh on markets.
Professional investors do not expect any sharp improvement soon.
"[The equity market] is not a happy place to be," EL & C Baillieu Stockbroking director Richard Morrow said. "In the last six months, a lot of traditional sharemarket investors have withdrawn from the market and a lot of money has flown into fixed interest [bonds]," he said.
"A lot of buyers have been well and truly frightened by the volatility coming out of Europe and that has sometimes flowed through into America, even though the economic data coming out of the country has been pretty optimistic over the last six to 12 months."
Mr Morrow said on a total shareholder return basis, including share price growth plus dividends paid, investors lost 9.7 per cent, thanks to some robust bank dividends. On the same basis, 2011 is also on track to underperform every year of the past 20, except for 2008.
Next month ANZ, NAB and Westpac are scheduled to return about $4.8 billion to shareholders.
Mr Rocks from Merrill Lynch said the next few weeks would be crucial to the final full-year outcome.
"The European Central Bank will be meeting shortly, and people will be looking for any signs that it's going to increase the rate at which it's buying bonds," he said.
"You'll also have a meeting of Europe's leaders. That will be very crucial for people judging the duration and depth of the European crisis. Perceptions on those things and any actual outcomes will be the biggest drivers of where markets finish the year."
Mr Morrow doesn't expect a "Santa Claus rally".
"The market's been hit by good news on earnings and interest rates for the last four months and it's still underperformed. It's more likely to go sideways," he said.
"It's purely sentiment-driven, because if it was going back to fundamentals, the market would be 10-15 per cent higher, based on relative returns to fixed interest, the strong profitability of Australian industry, and historically high dividend yields, particularly in the banking sector."
Yesterday the market closed marginally higher after fresh domestic economic data boosted sentiment, while there was opportunistic buying in industrial stocks.
CommSec market analyst Tom Piotrowski said positive private investment figures gave a modest life to the market .
Australian new capital expenditure growth surged 12.3 per cent in the September quarter, beating an expected 7 per cent rise.
BHP Billiton was down 6? at $34.92, Rio Tinto eased 55? to $62.95 and Fortescue slid 11? to $4.54.
Trading volumes remained thin, Mr Piotrowski said.
Gold's spot price closed in Sydney at $US1722.60 an ounce, up $US9.59.
Frequently Asked Questions about this Article…
Why has the ASX 200 had such a poor performance in 2011?
The ASX 200 is down about 13.2% year‑to‑date in 2011 (a market value fall of roughly $159 billion). The article cites a mix of factors: the European sovereign debt crisis, a slower US recovery, a stronger US dollar, and weaker domestic data early in the year. Those global and local headwinds hit many of Australia’s largest stocks and weighed on investor sentiment.
Which Australian companies were the biggest losers on the market this year?
Leading the declines in 2011 were Qantas (down ~40.3% since January 1), Macquarie Group (down ~37.5%), Fortescue Metals (down ~30.6%) and QBE Insurance (down ~25.8%). Large resources and financial names such as BHP Billiton (down ~22.8%) and several of the big banks also lost ground.
How have the major Australian banks performed and what should investors know about upcoming payouts?
All four major banks fell in 2011; ANZ was the weakest among them (down about 14.8%) while NAB was the best performer of the big four (down about 1.2%). The article notes ANZ, NAB and Westpac were scheduled to return roughly $4.8 billion to shareholders the following month, which can affect total shareholder returns even when share prices are weak.
What impact has the market downturn had on superannuation and balanced funds?
The poor performance in equities has flowed through to many superannuation funds. Balanced funds were expected to return very little in 2011, as weak sharemarket returns reduce overall fund performance for members.
Are professional investors expecting a quick market recovery or a 'Santa Claus rally'?
No. Equity strategists quoted in the article said professional investors do not expect a sharp improvement soon. One market director said a Santa Claus rally was unlikely and that markets were more likely to trade sideways, driven largely by sentiment rather than fundamentals.
What global events could influence where markets finish the year?
The article highlights two key near‑term events: a European Central Bank meeting (market watchers would look for signs it increases bond purchases) and a meeting of European leaders. Outcomes and market perceptions around the duration and depth of Europe’s crisis were seen as major drivers for where markets would finish the year.
Are investors moving into safer assets, and what has that meant for bond markets?
Yes. The article reports that many traditional sharemarket investors have withdrawn from equities and moved money into fixed interest (bonds). This flight to bonds reflects heightened fear about Europe’s volatility and has been a significant factor in market behaviour.
Was there any positive economic data or sectors showing resilience amid the downturn?
There were a few brighter spots: Australian new capital expenditure growth rose strongly, surging 12.3% in the September quarter (above the expected 7%). That positive private investment data gave the market a modest lift and prompted opportunistic buying in industrial stocks. Gold also closed higher locally, with the spot price reported at US$1,722.60 an ounce.
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