Long-suffering shareholders have just passed the five-year mark since the Australian sharemarket reached its all-time high. The All Ordinaries Index reached just above 6800 points on November 1, 2007 about 4500 points now, it is about 35 per cent below the high.
The chief economist at AMP Capital Investors, Shane Oliver, calculates the index has produced an average annualised performance over the five years of minus 7.7 per cent. That is for share prices. Once dividends are included, the performance is minus 3.3 per cent.
It is not only shareholders who are licking their wounds.
The poor performance of Australian shares has set back the retirement plans of many older superannuation fund members.
SuperRatings data shows the typical "balanced" investment option, where most people have their money, returned an average annual 0.2 per cent over the five years to September 30 this year.
And the main reason for the poor performance is the high exposure to shares. About 30 per cent of the money in the typical balanced investment option is in Australian shares and 20 per cent is in international shares, though there are wide variations between superannuation funds.
The 55 per cent fall in share prices between November 2007 and March 2009 was the worst bear market since the 1970s, Oliver says.
Over the past year, our share prices have risen by more than 10 per cent, or more than 14 per cent including dividends, with most of the gains from the middle of this year. But our shares are underperforming international shares. Despite our economy doing much better, US share prices have done so well they are close to recovering their all-time high of October 2007.
Those share prices have been supported by the US's huge fiscal stimulus, low interest rates and the weak American dollar.
By contrast, Australia's official cash rate of 3.25 per cent is still well above the interest rates of many other countries, delivering good returns on term deposits.
The biggest drag on the recovery in Australian shares is the resources sector, as the share prices of the big miners are hit by slowing Chinese growth and lower commodity prices. Still, our sharemarket has moved higher since the middle of the year as the poor performances of the miners have been more than offset by the positive contribution of the high-yielding stocks such as Telstra and the big banks.
Investors have also been buying shares of companies with sustainable earnings growth, despite their lower dividend yields, such as those in healthcare.
Who knows whether the improvement in Australian shares is sustainable. Our market remains hostage to bad news from overseas and there have been plenty of false dawns since the global financial crisis. The risks are generally lower than at any time in the past five years, but plenty of things could go wrong. There are the ongoing debt woes in Europe, with Greece and Spain at the top of the worry list.
There will be a change of leadership in China this month and there is the prospect of the US "fiscal cliff", where, if the White House and Congress fail to agree on the federal budget, automatic cuts will be made to government spending and taxes will be raised.
If the fiscal cliff is triggered, it is forecast to wipe about 4 per cent from US economic growth next year, which would push the world's biggest economy into recession.
But there are reasons to be hopeful. China's economy is slowing but is still expanding at an annual rate of almost 8 per cent.
The resources boom, despite the current cooling, has a long way to go. For the market to lift substantially higher, there would need to be a pick-up in global economic growth and a swing to "cyclical" stocks, those whose fortunes are tied to economic growth. Nevertheless, even without a pick-up in global growth, shareholders can look forward to reasonable total returns.
Oliver is expecting a total return from Australian shares of between 10 per cent and 15 per cent over the next 12 months.
The chief investment officer at Clime Asset Management, John Abernethy, is expecting pretty much the same.
"The market will most likely drift up, supported by yield," he says. Abernethy says the rally in yield stocks probably has a way to go yet.
Term deposits, which were paying about 6 per cent two years ago, are paying about 4.5 per cent at present. Telstra and the big banks are yielding between about 6 per cent and 7 per cent,
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