Market Wrap | 06.07.2012

The Year That Was: 2011/12

Economic & Financial market trends

A mixed year: The Australian sharemarket fell by 11.1 per cent with total returns down 7.0 per cent. But bond returns rose 14.6 per cent – the best gains in 15 years. Telecommunications & technology rose, resources fell. But the year ended with a bang on hopes that the European debt crisis was finally settling.

The Year in Review 2011/12

Attached is our review of 2011/12 and outlook of 2012/13. Words have been kept to a minimum, just plenty of facts, figures and charts to help guide your way through the coming year.

The Year in Review 2011/12 – Main Points

• The European debt crisis dominated attention over the year.
• A good timeline of the crisis: http://www.bbc.co.uk/news/business-13856580
• European leaders achieve a ‘three-pronged’ agreement in October.
• The Eurozone agrees to another Greek bailout in March.
• Nicolas Sarkozy lost the French presidency to socialist, Francois Hollande.
• After two attempts, a new coalition government was elected in Greece.
• Spain formally applied for assistance for its banking sector.
• European leaders agreed on a single supervisor for euro zone banks in June.
• The US economic recovery lost momentum.
• China successfully slowed its economy to bring inflation under control.
• The Reserve Bank cut the cash rate from 4.75% to 3.50%.
• Global shares fell 16% between July and October due to the Greek debt crisis.
• The ASX 200 rose 9.4% from January to May and then lost all gains in 17 days.
• The Aussie dollar traded over a US17 cent range.
• Australian 3yr bond yields hit record lows; 10yr yields hit 60 year lows.

Outlook for 2012/13

·         We are hopeful that European leaders will continue to make progress on the debt crisis, although investors may be frustrated by the speed of action.

·         Chinese authorities will act to stimulate the economy over the coming year. But as they have shown in the past few months, they are likely to tread more cautiously than in the past, fearful of reigniting inflation.

·         CommSec believes that the US economy is merely going through a ‘soft patch’ or mid-cycle pause in the recovery process. The good news is that the housing imbalance is being corrected and US companies are making solid returns.

·         The Australian economy is expected to experience more ‘normal’ growth over 2012/13 with growth of around 3.25 per cent.

·         If Europe stabilises as hoped and Chinese economic policy is more stimulatory, then resource stocks will be back in favour and the Aussie dollar will creep higher. CommSec tips the ASX 200 to be at 4,650 in June 2013 with the Aussie dollar expected to be around US104 cents.

Updated with final closing figures

Craig James, Chief Economist, CommSec Savanth Sebastian, Economist, CommSec 

Important Information

The summary and attached report has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. In the case of certain securities Commonwealth Bank of Australia is or may be the only market maker.

Indices:

The All Ordinaries Index has moved up increasing +57 points (or +1.3%) since closing last Friday to 12:25 pm today.

                                                                                                                                       

The rest of the world as measured by the MSCI index increased +8 points (or +1.0%) in A$ from closing last Friday to end of trade Thursday.