Market Performance 2012

By Jason Fittler

The general feel for 2012 from investors is of underperformance. However, as we take a look at the year that was you will see that this is not entirely true for the Australian market.

The ASX 200 started the year at 4607 and closed at 4168 which is a drop of 9.5% for the year, however, this figure only take into consideration gains or losses on capital value and does not look at income.

When we look at the ASX200 Accumulation index which assumes that you have re-invested all of the dividends back into the market we see a gain of 2.5%. That's right a gain.

Which means that the strategy of buy blue chip companies, hold for the dividend and long-term growth has worked again this year.

Sure 2.5% is not a lot but look at it his way, we hold quality companies and like quality property will always grow over time, therefore the companies in the ASX200 have provided fantastic income. Far more than cash or term deposits.

As long as companies can continue to produce good profits in any markets then long-term you will see large capital gains. I think that the ASX 200 proved this again this year.

What we also saw was during the year the market fell below 4000 points no less than 6 times. This to me is a clear indicator that the bottom is in, as there is plenty of cash around to buy up at these low prices.

On comparison the US markets closed up around 2.4%. Although they suffered losses in the first quarter we saw consistent growth in the US from October 2011 onwards.

Germany was down around 1000 points or 13.5% for the year. Germany is the better performer in the Euro Zone. It is no surprise to anyone that Europe did not perform well in 2012 nor do I expect improvement in the coming year.

The positive takeaway is that the issue in Europe is understood and under control.

We saw interest Rates fall 1.25% to the current level of 3.5% with strong encouragement from the government. However, we are now in what I consider to be dangerously low interest rates. Once interest rate fall below 4% there is little flow on benefits from future rate cuts as such momentary policy becomes less effective.

Australians need to use this dip to pay off debt as I expect to see rates increase in the next 2 years.

Also note that is a negative for all of those investors sitting in cash as your income has now decreased. I expect that these low rates will see investors start to move back into the market over the coming year. We have already seen bond prices jump.

Exchange Rates started year around $1.08 and finished at $1.025. It dipped below $1 for a short time and I expect it will go lower in the coming 12 months. I expect that the dollar should be around $0.90.

Gold price was steady over the year although still sitting at historic highs up around $1600 an ounce. It closed up around $100 an ounce for the year on speculation that investors are looking for safety in the precious metal while the market is so volatile.

My prediction for 2013 is more of the same as Australia comes to grip with the costs of the Carbon Tax.

  • I expect we will see unemployment move up as companies and government rationalise.
  • Interest rates may fall another 50 bps but that should be the last of it.
  • Exchange rate to move under the $1 mark.
  • The market will continue to be volatile on any bad news flow... providing opportunities to buy blue chip companies cheap.

I will continue to invest in high yielding blue chip companies and wait for the capital growth while enjoying the benefits income brings.