The Year From Go To Woe

The Age

Thursday January 1, 2009

VANESSA O'SHAUGHNESSY, INVESTMENT REPORTER

IT STARTED as it meant to continue. After just two days of mediocre gains, 2008 produced a grinding 12-day losing streak that culminated in a 7.1 per cent one-day beating.

It was the biggest one-day fall since 1989. And it set the tone for 2008, and beyond.

Since then, as the world has descended into a so-called global economic crisis, the Australian sharemarket - like equity markets worldwide - has just kept falling.

And with the US, Europe, Britain and Japan in recession, few are willing to predict a recovery in 2009.

By close of trade yesterday, the S&P/ASX 200 Index had lost 41.3per cent of its value in just 12months. It started the year at 6339.8 points, and even after four consecutive days of gains, ended it at 3722.3.

In monetary terms, more than $600 billion has been subtracted from the market capitalisation of the top 200 companies. And that figure grows when calculated across the entire market, which includes more than 2000 companies.

It has been the worst year ever, outstripping the oil shock of 1974 and even the Great Depression, when markets fell by 34 per cent during 1930.

"It was the biggest calendar year fall for the Australian sharemarket in 112 years of records," said CommSec chief economist Craig James.

Of course, the Australian market has not been alone. With a few hours of data yet to collate from still-trading markets, the MSCI World Index had last night fallen 42.4 per cent during 2008.

In Asia, China's benchmark CSI 300 Index lost more than 65 per cent. Japan's Nikkei 225 fell more than 40 per cent, Hong Kong's Hang Seng lost more than 48 per cent and India's Sensex 30 Index halved in value.

Europe has performed a little better, with London's FTSE 100 having fallen more than 30 per cent while Germany's DAX was reduced by more than 40 per cent.

Meanwhile, the US, which is viewed as the source of the world's market woes, has seen the Dow Jones Industrial Average lose more than 34 per cent of its value, outperforming the broader S&P 500 Index, which is down almost 40 per cent.

Markets in emerging nations have also been devastated. Commodity-rich Brazil has experienced a downturn of more than 40per cent, and in Russia the benchmark Micex Index has lost more than 67 per cent of its value.

And equity markets around the world have finished the year on a dire note. Credit markets remain frozen, after a spate of corporate collapses that have prompted banks to hoard cash.

Currency markets have fluctuated wildly, with the Australian dollar plunging from a high of US98.49 to a low of US60.1, before ending the year just above US69.

And commodity markets, including those that support Australia's export industry, have declined in recent months. Base metals have more than halved in value, and the price of oil has fallen from a high of $US145.29 a barrel to a low of $US31.41 a barrel.

"It was annus horribilis," said Tolhurst strategist Tony Farnham, using the Latin phrase that has become the default description for 2008.

Uncertainty has caused a flight from equities and encouraged investors to seek the safety of government bonds and term deposits. Demand for those products, along with rapidly declining interest rates, has forced yields to record lows.

Mr Farnham says that, after accounting for inflation, the returns on fixed interest investments are no longer appealing.

"The music is going to stop there soon ... and sooner rather than later," he said, predicting a return to equities - in some sectors - in mid-2009.

But for those who had their money in equities in 2008, it was a painful ride.

Of Australia's largest companies, the worst performers include Rio Tinto, Macquarie Group, Wesfarmers and Commonwealth Bank.

They were down between 51per cent and 72 per cent.

Among the top 200 stocks, the ill-fated Babcock & Brown lost 99.4 per cent of its value, while HFA Holdings, Babcock & Brown Power, Valad Property Group, ING Industrial Fund and Babcock & Brown Infrastructure were not far behind.

The best performers included energy companies such as Linc Energy, Origin Energy and AGL Energy, along with OM Holdings, Iluka Resources and Centennial Coal.

Curiously, commodity stocks held their ground for most of the year as financial companies suffered the effects of the US subprime mortgage crisis.

The disintegration of securities related to those low-quality mortgages led to write-downs in the hundreds of billions of dollars.

And it prompted the collapse of Wall Street financial stalwart Lehman Brothers, the emergency sale of Bear Stearns and a big rescue of the world's biggest insurance company, American International Group.

"The global financial system ends 2008 on life support, with the developing economies contracting at a fearsome rate," wrote Westpac senior economist Matthew Hassan, reviewing the year. And, as pessimistic economic forecasts eventually stripped commodities of their immunity to the downturn, commodity stocks also headed south. After peaking in May, they suffered a dramatic reversal.

The materials sector, which includes Australia's miners, fell 42.1 per cent during the year, only slightly outperforming the financials sector, which lost 47.4per cent of its value.

The worst performer was the consumer discretionary sector, dragged down by declining consumer confidence.

On the final day of the year, though, stocks rose by 1.9 per cent as all sectors improved.

A more telling indication of the outlook for 2009 will be the market's performance this month.

© 2009 The Age

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