Waiting for improvement in financial markets is like waiting for Godot although I remain convinced that, unlike Godot, improvement will eventually arrive. As I write, the <?xml:namespace prefix = st1??> US share market has hit a 12-year low, and the ASX200 is very close to its cyclical low. For the month of February, the S&P500 index fell by 11%, bringing its year-to-date drop to 18.6%. In the past year, it has fallen by more than 45%.
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The Australian Government announced on Friday 6 March 2009 that it will reduce both the upper and lower deeming rates by 1% each, down to 3% and 2% respectively. This is as a result of the ongoing global financial and economic crisis, and its impact on investment returns. This will apply from 20 March 2009.
February was another bad month for investors with global share markets continuing to decline following more evidence of an intensifying global recession. The Australian market closed in the red for the sixth month in a row, despite another interest rate cut by the Reserve Bank and the Rudd Government’s announcement of the another stimulus package.
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A poor month for global share markets
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As the Australian sharemarket passes its sixth consecutive month of declines, those who hoped for a better year in shares are wondering if the Australian sharemarket will, in fact, be better than what we experienced in 2008. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office"??>
On 3 February 2009, the federal government made a series of policy announcements aimed at stimulating the Australian economy. From a financial planning perspective, the most relevant announcements included one-off lump sum payments for: <?xml:namespace prefix = o??>
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Australia's economy contracted sharply in the fourth quarter of 2008, putting it on course to join major economies in recession in early 2009 and renewing expectations of further interest rates cuts in coming months.
Australia's average measure of gross domestic product fell 0.5% in the fourth quarter of 2008 from the third quarter and rose 0.3% from the year-earlier period, the Bureau of Statistics said. The quarterly contraction was the first since the fourth quarter of 2000.
The latest Westpac Asian Market Perspectives report suggests that while financial markets may have calmed down somewhat since late last year, the economic situation across Asia has been deteriorating at a bewildering pace.
It wasn’t the best start to the year for investors as a weakening global economy continued to take its toll on the world’s major share markets. And it was a similar story here in Australia, with both our share market and our dollar losing ground amid concerns that we’re headed for our first recession since 1991.
At a glance
Those thinking that the turning of the year would immediately bring better news now know that they will need to wait longer. January was again not a happy month for investors. The US share market had its worst beginning ever for the first 20 days. The early-month weakness was concentrated in financials rather than in cyclical stocks, suggesting that the ongoing banking sector problems were of more concern than the general economic weakness. For all of January, the S&P500 index fell by 8.6%, although it remains 9.8% above its 20 November low.