The Australian share market had a positive month in February despite unprecedented political events and a shock decision by the Reserve Bank to keep rates on hold.
The All Ordinaries Index gained 1.4% to close February at 4,388.1 points. Aussie shares underperformed major global markets with the Dow Jones Index gaining 2.5%, the FTSE gaining 3.3%, the Nikkei 225 gaining 10.5% and the Hang Seng gaining 6.3% for the month.
February was reporting season for Australian companies. Results confirmed the “two-tiered” earnings cycle, with mining services, resources and banks all showing strong profits. Manufacturers and industrial companies struggled with the high dollar. Meanwhile retailers and media companies continue to struggle with a general cyclical downturn, a lack of consumer confidence and a move to online shopping.
There were several announcements of corporate job losses and redundancies in the month, suggesting that 2012 will be a difficult year for the Australian economy. Nevertheless, share markets are “forward looking” and share price valuations still look cheap for long-term investors.
No market wrap would be complete without a commentary on the political circus that eventuated in Canberra. The Kevin Rudd leadership challenge brought on an outpouring of character assassinations on a scale that has never before been seen (from within the Australian Labor Party no less). It was embarrassing for the nation and hopefully the Australian Labor Party can now get on with running the country.
To international events, Greece was again the focus. Greek lawmakers from the two main parties that make up government gave their initial approval to further reform and austerity measures in legislation.
In a race against time, Greece was scrambling to push through its parliament legislation needed to secure the country's second loan deal worth EUR130 billion. European leaders are expected to sign off on the bailout at a summit starting later this week.
The latest wave of austerity measures come as the European Union promises to do everything it can to help Greece return to growth, starting with EUR20 billion. After meeting with Greek Prime Minister Lucas Papademos in Brussels, European Commission President Jose Manuel Barroso said there was "no reason" why Greece can't make its bailout program work and return to growth.
Whilst these comments are very positive for investors, I note that the Greece parliamentary elections are scheduled to occur in April. With protests continuing on the streets of Athens, the forthcoming elections will most likely add some more uncertainty (and volatility) to international markets.
To interest rate news, the RBA shocked many by keeping rates on hold in February. Then, in a move to kick borrowers in the teeth (or a sign of strength if you are a bank shareholder) the major Australian banks decided to increase their variable rate of mortgage interest. The RBA board will meet again next Tuesday to assess rates.
The Australian Dollar strengthened on the back of the RBA decision to keep rates on hold and is currently buying US107.41 cents.
For more information please contact Ryan Love on 1300 856 338 or e-mail ryan.love@apexpartners.com.au.
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