The Australian sharemarket had its fourth consecutive month of gains in June.
The All Ordinaries Index closed the month 3.5% higher at 3,947.8 points. In June, investors returned to the sharemarket on growing belief that the global economy is slowly rebounding.
Global shares continued their upward trend in June, consistent with the Australian sharemarket.
30 June represented the close of the Australian financial year. The past year will be remembered for the Global Financial Crisis and near collapse of the global financial system.
The All Ordinaries Index fell 26% over the financial year, the biggest loss since 1982. The pain was felt across the world, with US markets down 28%, Japan down 26% and UK down 24% over the 12 month period.
Although the past financial year is one that many investors would prefer to forget, there are signs that the worst has passed with the All Ordinaries up 27% from its March lows. This growth is on the back of increasing consumer sentiment, government stimulus packages and renewed optimism on global growth – led in the main by China.
The renewed optimism is highlighted by the increase in the Australian dollar from US60 cents to US80 cents, indicating an increase in demand for commodities and a return to production in Asian markets.
With markets showing signs of recovery, many are expecting interest rates to remain stable for the short-term, with pressure toward a rate increase in the latter part of 2009.
The outlook for the financial year ahead is generally positive. A survey of fund manager estimates conducted by The Australian Financial Review indicates that, on average, the Australian sharemarket is estimated to rise by 21.4% over the coming financial year.
The key drivers toward a sustained recovery are renewed consumer confidence, easing of conditions in global credit markets, a return of cash orientated investors to equities, and a return to global economic growth.
Whilst we still expect to see market volatility for the foreseeable future (noting that investor sentiment will be tested during the full-year reporting season in July and August), we must remember that the sharemarket had priced-in a Great Depression scenario. In all likelihood we are unlikely to experience the economic doom and gloom of that experienced during the Great Depression.
With the recent resurgence in the sharemarket, our January prediction for the All Ordinaries index to close at around 4,200 points may be viewed as somewhat conservative. We share the consensus view of strong double-digit growth for the coming financial year, and look forward to better times ahead.