Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 261

Winners and losers in sharemarkets, 2017/18

The broad Australian share market posted total returns (including dividends) of 14% for the 2017-2018 year. This was the sixth straight financial year of positive total returns (although the 2015-2016 year was line ball following the commodities price collapse). Here is a chart of the main sector price indexes over past 12 months.

Click to enlarge

Winners and losers by sector

The sectors that dragged down returns were the banks, telecommunications and utilities. They account for nearly half of the total market value. The main culprits were the banks (‘Financials ex-property trust’ sector above). All of the big dinosaur banks were down heavily with CBA the worst, down 12%. Macquarie, which is more of an asset manager than a bank, is the only local ‘bank’ with any global or even regional potential and was up a strong 40%. AMP was down another 30% for the year and is now more than 80% below its listing price 19 years ago.

Telstra fell another 39% over the year as it cut dividends and faces more cuts in coming years. Its share price is now 70% below its dot-com peak 19 years ago. Both AMP and Telstra were sleepy old institutions prior to their stock market listings but both were crippled by disastrous spending sprees undertaken by their imported American CEOs in their early years as listed companies. They have both been plagued by poor management distracted by cleaning up the messes of the past. Unfortunately, hundreds of thousands of retail investors were caught up in the hype drummed up for their listings in the late 1990s boom and many are still clinging grimly to their shares today.

Most other sectors of the market had a great year. Resources were the best, benefiting from rising commodities prices and finally a weaker Australian dollar. Miners were up strongly virtually across the board, led by BHP and RIO (up 45% and 32% respectively). Fortescue was the only major exception. In the Energy sector, all of the major oil, gas and coal stocks were up strongly on higher oil prices.

The Tech sector also rode the global tech boom. Computershare was up 30%, Carsales and REA both up 30+%. Healthcare stocks were aided by global healthcare strength, with CSL, Cochlear, Fisher & Paykel Health and especially Sirtex up strongly.

Although the overall Australian share market is not overpriced on a variety of valuation measures, our outlook for returns is rather subdued. The banks are facing a housing and construction slowdown, rising compliance costs, and management severely distracted by the fallout from the Financial Services Royal Commission. Falling housing prices, credit restrictions and rising mortgage interest rates risk hurting local demand for products and services, while exporters face lower global demand if the trade war escalates

Impact of a falling Aussie dollar on global equities

One of the big impacts on investment portfolios this year has been the Australian dollar, and how much of the currency risk in international share holdings was ‘hedged’ or ‘unhedged’.

Some global share funds have the currency risk ‘hedged’ (like the Exchange Traded Fund ‘VGAD’ and the Magellan Infrastructure Fund) while others leave the currency risk ‘unhedged’ (like the ETF ‘VGS’ and the MFS Global Fund). The decision on how much hedging to use can make a big difference to portfolio returns.

In the chart below, the red line shows returns in Australian dollars from global shares when the currency risk is hedged, and the green line shows returns when the currency is unhedged.

Hedged returns do better when the Aussie dollar is rising or flat (usually in booms), and unhedged returns do better when the Aussie dollar is falling (usually in busts). The lower section shows the relative returns between hedged and unhedged - positive red bars when hedged returns are beating unhedged (AUD rising or flat) and negative green bars when unhedged is winning (AUD falling). The orange dotted line running through the middle of the chart shows the US Dollar / Aussie dollar exchange rate.

Click to enlarge

This calendar year, the US dollar has risen and Aussie dollar has fallen. Hedged returns (red) have been flat as global shares have stalled, but unhedged returns (green) have continued to rise. It shows how performance of global shares for unhedged Australian investors can be affected as much by the currency as the underlying funds, companies or markets.

 

Ashley Owen is Chief Investment Officer at advisory firm Stanford Brown and The Lunar Group. He is also a Director of Third Link Investment Managers, a fund that supports Australian charities. This article is general information that does not consider the circumstances of any individual.

 


 

Leave a Comment:

     

RELATED ARTICLES

Why August company reporting season was poor

It was a good year for shares, but what’s ahead?

Changing times as share investors settle in for the long haul

banner

Most viewed in recent weeks

10 little-known pension traps prove the value of advice

Most people entering retirement do not see a financial adviser, mainly due to cost. It's a major problem because there are small mistakes a retiree can make which are expensive and avoidable if a few tips were known.

Check eligibility for the Commonwealth Seniors Health Card

Eligibility for the Commonwealth Seniors Health Card has no asset test and a relatively high income test. It's worth checking eligibility and the benefits of qualifying to save on the cost of medications.

Hamish Douglass on why the movie hasn’t ended yet

The focus is on Magellan for its investment performance and departure of the CEO, but Douglass says the pandemic, inflation, rising rates and Middle East tensions have not played out. Vindication is always long term.

Start the year right with the 2022 Retiree Checklist

This is our annual checklist of what retirees need to be aware of in 2022. It is a long list of 25 items and not everything will apply to your situation. Run your eye over the benefits and entitlements.

At 98-years-old, Charlie Munger still delivers the one-liners

The Warren Buffett/Charlie Munger partnership is the stuff of legends, but even Charlie admits it is coming to an end ("I'm nearly dead"). He is one of the few people in investing prepared to say what he thinks.

Should I pay off the mortgage or top up my superannuation?

Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.

Latest Updates

Investment strategies

Three ways index investing masks extra risk

There are thousands of different indexes, and they are not all diversified and broadly-based. Watch for concentration risk in sectors and companies, and know the underlying assets in case liquidity is needed.

Investment strategies

Will 2022 be the year for quality companies?

It is easy to feel like an investing genius over the last 10 years, with most asset classes making wonderful gains. But if there's a setback, companies like Reece, ARB, Cochlear, REA Group and CSL will recover best.

Shares

2022 outlook: buy a raincoat but don't put it on yet

In the 11th year of a bull market, near the end of the cycle, some type of correction is likely. Underneath is solid, healthy and underpinned by strong earnings growth, but there's less room for mistakes.

Gold

Time to give up on gold?

In 2021, the gold price failed to sustain its strong rise since 2018, although it recovered after early losses. But where does gold sit in a world of inflation, rising rates and a competitor like Bitcoin?

Investment strategies

Global leaders reveal surprises of 2021, challenges for 2022

In a sentence or two, global experts across many fields are asked to summarise the biggest surprise of 2021, and enduring challenges into 2022. It's a short and sweet view of the changes we are all facing.

Shares

2021 was a standout year for stockmarket listings

In 2021, sharemarket gains supported record levels of capital raisings and IPOs in Australia. The range of deals listed here shows the maturity of the local market in providing equity capital.

Economy

Let 'er rip: how high can debt-to-GDP ratios soar?

Governments and investors have been complacent about the build up of debt, but at some level, a ceiling exists. Are we near yet? Trouble is brewing, especially in the eurozone and emerging countries.

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.