Market overview to 30 June 2008.
Here’s a round-up of what went down.
Australian shares
You wouldn’t know it to look at performance, but the Aussie sharemarket actually hit some record highs during the year. Sadly, these were “blink and you’d miss ‘em” moments.
The market closed down 13.7%, after a really promising first three months. Negative drivers at home included numerous company earnings downgrades and several interest rate rises. Worried about inflation – along with the rest of the world – the Reserve Bank increased rates to keep the economy in check.
Bad news overseas added to investor blues. The credit crunch crisis, more fall-outs from the US sub-prime mortgage debts and threats of a US recession led to panic selling.
International shares
If the US is the world’s most powerful economy, it’s also the most watched economy. And it wasn’t happy viewing. Hounded by sub-prime mortgage debts, fears of a recession and an increasing squeeze on liquidity, the US Federal Reserve tried to kick-start the economy by aggressively cutting interest rates. But investor jitters set in and international shares finished down 21.3%.
The financial sector was the worst hit by the credit crunch crisis. US investment bank, Bank Stearns became so financially run down, it was bought out by JP Morgan. And Northern Star, the UK’s fifth largest mortgage provider, had to be bailed out by their Government.
China’s continued strong economic growth was the shining light for investors. But, there are increasing signs of a global economic slowdown – especially in the UK. World inflation isn’t looking too hot either, due to rises in energy and food prices. Asia and the US are currently the biggest inflationary pressure-cookers.
Property
The property sector was none too pleasing, ending down 36.4%. The sad news is that the downturn was mostly due to a bad case of investor nerves, rather than anything wrong with the sector.
The underlying fundamentals of property were really strong for a lot of 2007. But worries about the US sub-prime debts, the credit crisis and, finally, Centro Properties reporting financial difficulties, led to big time selling.
Despite all of this, there’s actually a lot to smile about. Property fundamentals still look solid, vacancy rates are low and demand for prime office space is high. And, because the sector has been so oversold, share prices may be really attractive for investors.
Cash and fixed interest
Given the worries about liquidity, it’s not surprising investors flocked to buy fixed interest and cash securities. Global bond investors were rewarded as the sector of the market finished the year up 8.7%, ahead of the 4.4% rise in the Australian bond market. Cash didn’t disappoint the punters either, ending up 7.3%.
To try and inject cash into the economy and reverse the liquidity squeeze, the US Federal Reserve drastically cut interest rates. Central Banks in the UK, Europe and Canada quickly followed suit to minimise the potential US fallout.
Cash securities didn’t escape the rough and tumble of the rest of the market. While the buying power of the US Dollar fell significantly, the Australian Dollar appreciated due to higher commodity prices and rising interest rates.
*This information is based on market commentary provided by Macquarie Investment Management Ltd. It does not constitute financial advice and is of a general nature only without taking into account a person’s individual circumstances or needs.