The Australian sharemarket continued its downward trend in June, with the All Ordinaries Index falling 2.9% to close at 4,324.8 points. International markets were also down as European government debt concerns continued to weigh on the market.
The Dow Jones Index closed down 3.6%, the FTSE closed down 5.5% and the Nikkei 225 closed down 4.0% for the month. The Hang Seng bucked the global trend and increased by 1.8% in the month.
June marked the end of the financial year in Australia. For the full financial year, the Australian sharemarket gained 9.5%. Although in recent months, fresh concerns of sovereign debt has eroded some of the solid gains made earlier in the financial year.
June was also a month of political turmoil in Australia, which saw the ousting of Prime Minister Rudd, and the appointment of Australia’s first female Prime Minister. Uncertainties still persist in relation to the proposed Resource Super Profits Tax, although we expect this issue to be resolved in the coming weeks.
We retain our view that the Australian sharemarket is undervalued on a long-term price-earnings valuation basis (currently 12x average PE ratio compared to long-term average of 15x). However, we continue to monitor closely economic news coming from China and the US and domestic consumer confidence.
As indicated in last month’s summary, we would not be surprised to see the European government debt concerns create uncertainty amongst global markets in the immediate term (i.e. next 2-3 months). As a result, we expect volatility to remain present in all markets for some time.
The Reserve Bank of Australia kept rates on hold in June. The RBA cash rate is currently 4.50% per annum. Interest rates are expected to remain on hold whilst the recent economic uncertainty in Europe plays out.