2011 – In Review

By Jason Fittler

Everyone likes a good news story; well the good news for 2011 is that it is over. 

For me 2012 will be another year of consolidating client’s investment portfolios to take advantage of oversold companies, holding the quality companies for yield and taking profits on the growth stocks in the materials sectors when available. 

I am hearing that 2012 will be a much better year; I am hearing this about Real Estate and from Broking houses. If we think back to the start of 2011 the major investment houses were forecasting that the market would be anywhere from 5000 to 5700 by the end of 2011.

I expected to see it at least in the mid to high 4000 point level. The market (ASX 200) closed around 4050 down 700 points from the open at 4750, which is around 15%.  

But it is not all bad news. There are a number of quality companies trading 20-30% below their intrinsic value and paying gross dividends between 7-12%. Telstra is one of these and it also produced a positive result for the year. 

Below are the broking houses predictions for 2011 and 2012.

As you can see from the above predictions all broking houses got their call about the market wrong. It goes to show that simply talking the market up is not enough to actually make it move. It also holds true for the property market. 

2011 provided investors to go bargain shopping and get their portfolios set up for future capital growth.  

2012 I expect will be just a tough although I expect that in 2012 we will see the market move back closer to fair value. It will be a year to take some profits when available.  

I expect that residential property will look unattractive with low yields and values expected to continue to fall. 

Interest rates have been cut; as such investors holding cash will start looking for a better yield. This should start to push money back into the markets bringing shares back closer to fair value. 

There are two big head winds for 2012.

First is the European Crisis, this will continue to play out through 2012 and no doubt continue to bring volatility to the markets. The issue however has the full attention of the world as such I expect that it will be handled as efficiently as possible. I expect the IMF will be quick to move and should avoid any large scale disaster. 

The second head wind is more concerning, “The Carbon Tax”. We truly do not know how this will affect big business in Australia. The Carbon Tax will push up prices in Australia and put more pressure on the already overtaxed Australian public. I am not sure what the Australian government is thinking with this kind of behavior especially when there is no backing from major world players. 

For me, the instability in our government and its relentless pursuit to tax the average Australia more and more only to waste these funds on fruitless activities is the biggest threat to the prosperity of the average Australian. As such I will be closely monitoring this issue and making investment changes according. 

Below is a quick reminder of what happened in Australia and around the world over the past 12 months:

  1. Our market was down 15% but the Dow Jones was up 6%. China worst performer down 19%.
  2. Fosters was sold off shore to SAB Millers
  3. Our dollar hit a high of $1.10 US and a low of $0.96 US.
  4. Telecom sectors the big winner up 18% while materials were down 23.4% being the big loser.
  5. Gold up 12.8% while Tin down 28.3%
  6. Euro Debt issue
  7. Unemployment up, interest rates down.
  8. Australian Budget has a $37 billion deficit
  9. Home ownership drops to 66% from 73%.
  10. Car sale strong close to a million units again in 2011.
  11. Australian terms of trade highest in 140 years thanks to Iron Ore.
  12. Retail sector suffers as Australians spend $30 billion online.
  13. Industrial action is stepped up in Australia with the QANTAS grounding and port lock outs. 
  14. Queensland has a 100 year flood and worst cyclone ever.
  15. Japan and Christchurch both suffer from earthquakes 
  16. Bangkok suffers floods in July.
  17. 3500 boat people arrive and 53,000 overstay their visa.
  18. The population of Australia hits 22,786,000. 

Saying good-bye to 2011 will not be tough as all up it has been a tough year from most Australians.  

Fundamentally, Australians are going to have another tough year. I expect 2012 will be hard for the average Australian as the costs of living continue to increase, full time employment will be harder to find and loans for housing harder to get. 

The average family is about to start making the same tough decisions which our Australian businesses made back in 2009, cutting their budget, getting rid of unnecessary expenditure and reducing debt. 

I expect to hear more in the media about Australian families doing it tough. 

Do not confuse this with Australian businesses doing it tough. Our major Australian companies have already made the necessary hard decisions and as such are now well structured. Australian companies are cheap and this is clearly shown by the high level dividends they are paying, dividend yields are well above the historical average. 

For me 2012 will be another year of consolidating client’s investment portfolios to take advantage of oversold companies, holding the quality companies for yield and taking profits on the growth stocks in the materials sectors when available.