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??>
<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office"??>
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.
The New Year did not bring better economic news. Most sobering was the International Monetary Fund (IMF) downgrade to its 2009 global economic growth forecast. The IMF now expects global growth to be 0.5% in 2009, the slowest annual growth rate since World War II.
Global growth is slowing given the global financial crisis and falls in global output and trade. The prognosis for US, Europe and Japan was particularly sobering with developing economies set to be the main driver of growth in 2009.
Quarterly Outlook draws on the views and opinions of Australia’s leading funds management organisations, as well as the views of the Lonsec Investment Committee. Quarterly Outlook presents tactical positions (overweight, underweight and neutral) towards shares, property, fixed interest and cash, based on these combined inputs.
Results from the December quarter were an apt summary of the grim year investors had in 2008.
Over the three month period, at least 19 countries declared recession, leading to unprecedented levels of volatility in equity markets. The Australian share market recorded its fifth consecutive negative quarter.
The declining global growth led to commodities and commodity stocks being sold off heavily, thus having flow-on effect on the Australian dollar, which declined significantly.
An overview of the latest figures in the American economy provided by Chris Caton.
Click here to access this report