The Australian Market 2019 – A Tale of Two Stories

Investing Psychology, Stocks Jan 10, 2020 / Reading Time: 3 mins
Avatar By Joshua Barker Reading Time: 3 mins

Despite a war between the two largest economies, an inverted yield curve and a presidential impeachment, markets around the world power on to new-highs. And yet the Australian market struggled to shake off the pre-GFC levels.

After a great start off the blocks, the Aussie market faced heavy resistance every time investors saw the same index numbers they did just before the Global Financial Crisis sent shock waves through to investment portfolios. Whilst it may read as the best year of the decade on the stockmarket, was it really that good?

The index started the year at 5,646 to rallying almost 1300 points to achieve a remarkable 23% by the end of July – in just 7 months.

However since this achievement, the index has unfortunately not experienced the new-highs rally that have been seen in other Global Markets. The highs of that record half have not been significantly exceeded since. Even with the expected ‘Christmas Rally’ of low volumes that historically have seen security prices drift higher, Australian Investors still did not have the confidence to push the index higher than it was in late-July. In fact quite the opposite – an end-of-decade profit securing took another 2% off the index in the final hours of trade. Meaning 5-months of no returns even when accounting for dividends for Aussie Investors.

Regardless, the market has held up its exceptional return achieved in the first part of the year – resulting in an impressive 18% return without dividends for the history books. [For the record, the Top 200 yields approx. 4% not including franking credits, so totalling 22% returned by Australia’s largest companies]. It still reads as the best year of the decade (the best year since 2009, right after the GFC). Not bad if you had the foresight to start investing on January 2nd amidst all of the uncertainties facing the sharemarket and economy as a whole.

ASX200 12 months:

Whilst it may look like a stellar run. For most established investors who were involved prior to this year, the headline 20%+ returns comes as a consolation prize for their patience of holding on after the correction sell-off that rocked markets at the end of 2018. The markets dropped almost 900 points from the highs of August ’18 – bringing the total return of index down to a modest 8% return over the last 18-months.

ASX200 3 years:

There were 2 key reasons why markets sold off; the first being the trade war intensifying and the second was the pricing in of fears a recession would occur in the US economy. Both of these concerns remained a part of 2019, albeit to a lesser an extent, and are very likely to be prominent in 2020. And yet the ASX has maintained it’s uptrend.

Despite these issues and the economic cycle in boom territory for so long now, the question remains how long can the rally continue. 2020 is likely to be a pivotal year for markets, new highs and new trade ranges or will fear take over yet again once the all-time-highs near. As always, the best strategy is to be prepared with contingency plans in place for a range of scenarios likely to affect portfolios and your hard earned money.

 

Stay tuned for our insights into what the year 2020 will likely hold.

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