Market reports

 

Review and Outlook

 

Currency

The Australian dollar (AUD) fell 0.8% against the US dollar (USD) during the quarter. The decline came as some commodity prices fell and as demand for Australian equities waned.

In the December quarter the AUD rose 1.9% against the UK pound. It fell 2.2% against the New Zealand dollar; fell 3.6% against the Japanese yen and fell 3.4% against the euro.

While many factors affect the Australian dollar, movements in interest rates and commodity prices have played a major role over time.

Review and Outlook

Market Indices	Returns as at 31-December-2007
	1 mth (%)	3 mths (%)	6 mths (%)	1 year (%)	3 yrs (% p.a.)	5 yrs (% p.a.)	10 yrs (% p.a.)
Australian Shares
S&P/ASX 200 Accum	-2.72	-2.73	3.00	16.07	20.99	21.04	13.56
International Shares
MSCI World Ex Aust (AUD) Net	-0.50	-1.60	-3.69	-2.60	8.26	6.72	3.67
Australian Fixed Interest
UBSA Comp Bond All Maturities Index	-0.16	0.25	1.74	3.46	4.13	4.47	5.64
International Fixed Interest
Citigroup World Govt Bond 100% Hdg (AUD)	0.28	2.81	6.30	7.03	6.15	6.59	7.26
Property
S&P/ASX 200 Prop Trusts Accum	-6.75	-13.10	-8.30	-8.41	11.36	14.68	12.87
Cash
UBSA Bank Bill Index	0.60	1.74	3.41	6.73	6.16	5.80	5.54
Currency
Australian Dollar ($A/$US)	-0.72	-0.78	3.49	11.40	3.85	9.29	3.03

 

 

 

Past performance is not a reliable indicator of future performance.

Australian shares

The Australian sharemarket slipped backwards during the December quarter with the S&P/ASX 200 Accumulation index falling 2.7%. The market was driven lower by fallout from the US sub-prime problem. Offshore sentiment was weak and this flowed over to Australia. For 2007, the market rose 16.1% following a return of 24.2% in 2006.

In November, the S&P/ASX All Ordinaries share price index reached an all-time high of 6853 but fell back to 6241 at year’s end. The market had been pushed higher by takeover activity, the strong economy and by good company profit results; however, the market was then overwhelmed by fears of a US recession.

The catalyst for the decline was losses made by large US financial institutions resulting from sub-prime lending. These highlighted the difficulties facing US consumers and sparked fears of a US recession. Interest rates for business borrowing subsequently rose which threatened to depress company profits.

Weakness in the US led to concerns about the profitability of Australian companies with US operations. It also placed a spotlight on all financial institutions several of which fell appreciably including Macquarie Group (-9.7%), St George Bank (-8.3%) and Suncorp-Metway (-16.7%).

Adding to downward pressure in the market was the listed property trust sector (-13.1%). In the face of tougher borrowing conditions, Centro Properties Group had difficulties refinancing its short-term debts. This saw its share price plummet and drag down most of the sector.

During the quarter BHP Billiton announced a takeover proposal for Rio Tinto sending Rio Tinto shares significantly higher. BHP Billiton has until early February to make a formal bid. Also in the quarter, Wesfarmers completed its takeover of Coles Group.

Among the nation’s top 50 companies, the strongest performers over the quarter included Rio Tinto (+23.9%), Newcrest Mining (+18.2%), Woolworths (+14.1%) and ASX (+12.6%). Among the poorer performers were Centro Properties Group (-86.3%), Zinifex (-26.1%) and Brambles (-21.9%).

In 2008, the market is likely to be faced with a strong domestic economy but also with weakness in the US sharemarket as its economy slows. The demand for resources remains strong but uncertainty over interest rates will weigh on the market. The past five years have seen strong returns from the Australian sharemarket. In 2008 the underlying environment will still be positive but less favourable than in previous years.

International shares

International shares performed poorly in the December quarter. All major markets fell, however, a weaker Australian dollar cushioned the fall for Australian investors. The MSCI World (ex Australia) Index fell 1.6% in Australian dollars (AUD). For the year, the index fell 2.6%.

The US Dow Jones Industrial index fell 4.5% for the quarter; the S&P500 was down 3.8% while the Nasdaq fell 1.8%. Fear of a recession, slowing earnings growth and losses by banks pushed US markets down. For 2007, the Dow was up 6.4%.

Important Information
The information contained in this market update is of a factual nature only and is not intended to constitute either general or personal financial product advice. It does not take into account your particular investment objectives, financial situation or needs. You should consider the appropriateness of the information having regard to your own objectives, financial situation and needs. You should consult the relevant professional for advice before making any decision on the basis of this information. A product disclosure statement (PDS) outlines specific information relating to a financial product. You should read the relevant PDS prior to making any decisions about whether to acquire a product. Past performance is not indicative of future performance. Commonwealth Financial Planning Limited ABN 65 003 900 169, AFSL 23113.