Australian shares ended the financial year on a surprisingly strong note — despite a potential trade war and the impact of the banking royal commission.
The benchmark ASX 200 index rose 6.5pc in the last 12 months, outpacing its global peers, to close at 6,195 points at 4:30pm (AEST).
The biggest slide was seen in the Australian dollar as the US economy and greenback continue to strengthen, and the Federal Reserve hikes interest rates more aggressively than expected.
How did Australia perform?
The ASX 200 has consistently outperformed European and Asian markets in the 2017-18 financial year.
Over the 12-month period, the benchmark Australian index rose 6.5 per cent, versus the S&P 500’s gain of 12.3 per cent.
|ASX 200||S&P 500 (US)||FTSE 100 (UK)||Shanghai composite|
|Year ended 29 June (1 year)||+6.5pc||+12.3pc||+3.6pc||-10.7pc|
|Year to date (6 months)||+2.5pc||+1.6pc||-1pc||-14.7pc|
|Past quarter (3 months)||+8pc||+2.9pc||+7.9pc||-11pc|
|Month to date (1 month)||+3pc||+0.4pc||-0.9pc||-8.9pc|
But Wall Street started to show signs of ongoing weakness in early-February when the Dow Jones plunged 1,175 points, its biggest points drop in a single day, sparked by a surge in US treasury bonds.
More recently, global markets have taken a dive over US President Donald Trump’s threats to impose metal tariffs on most of the world’s countries, and the escalation of retaliatory tariffs which threatens to erupt into a trade war.
The local bourse was at its strongest in the past quarter, jumping 8 per cent. It beat the US and China markets by far, but was almost eclipsed by London.
Although it slowed down in the past month, the ASX 200 (+3pc) maintained its lead against the other major markets.
Best and worst performing sectors
Several Australian sectors posted double-digit growth including energy (+38.7pc), technology (+29.7pc), materials (+25.7pc) and healthcare (+25.4pc), consumer staples (+24.5pc), and consumer discretionaries (+11.6pc).
But the worst-performing sector was telecommunications (-35pc), led almost entirely by a 39 per cent collapse in the share price of Telstra, the nation’s most widely-held stock.
The other weakest performers were the utilities (-5.3pc) and financials sectors (-3.2pc).
The best and worst performing sectors of the ASX (June 29, 2018 at 2:30pm AEST) (Supplied: CMC Markets)
Some stocks experienced triple-digit growth including Appen (+233pc), Afterpay (+219pc), Santos (+104pc) and Whitehaven Coal (+102pc).
Among the big four banks, CBA fell the most (-11.4pc), followed by NAB (-6pc), Westpac (-3.7pc), ANZ (-2pc).
Even worse was AMP, which saw its share price slide 32 per cent to $3.56, its lowest price in more than a decade.
In contrast, Macquarie Bank was an outlier, and saw its share price surge 48 per cent.
Brick-and-mortar retailers also struggled, particularly Harvey Norman (-12.5pc) and JB Hi-Fi (-4.5pc).
Myer, in particular, faced the embarrassment of being booted out of the ASX 200, with its market value now just $303 million — after its share price rapidly fell from 84 cents to 37 cents in one year
Falling Australian dollar and the silver lining
After peaking at 81.09 US cents (in late-January) the local currency plunged to 73.4 cents on Wednesday — its lowest value in more than a year.
Though a weaker Australian dollar means local assets are “cheaper” for foreigners, driving up demand for Australian shares and commodities.
Shares in BHP (+46pc) and Rio Tinto (+32pc) were lifted by a rise in the prices of two key commodities, iron ore and oil.
Market analysts certainly did not expect iron ore prices to “outperform”.
Many had predicted it would trade lower at $US50 per tonne, instead of jumping closer to the $US70 per tonne mark, about where it currently sits.
Brent crude surged to a 3.5-year high of around $US80 per barrel due to concerns that oil supply might become more restricted — particularly with the US deciding to re-impose sanctions on Iran, and urging other countries to stop buying its imports.
That’s despite a likely surge in oil supply from the world’s major oil producers, Russia and the OPEC nations, including Saudi Arabi and Iraq — which agreed last weekend to boost production levels.
Market analysts expect the Australian dollar to keep falling slightly, or remain flat.
After all, the widely-held expectation is that the Reserve Bank will leave Australian interest rates at record lows for the next couple of years, as the nation’s economy fails to improve quickly.
At the same time, the Federal Reserve is likely to continue boosting US interest rates, making the greenback a comparatively more attractive investment.
Despite a strong year for the ASX, compared to global markets, more uncertainty and volatility lies ahead.
Whether mining stocks and resources continue to thrive will depend on whether a trade war happens, according to stockbrocker Marcus Padley.
“If it happens, it might upset the Chinese market, so I’m feeling neutral about resources,” he said.
Mr Padley also said it might be safe to re-invest in banks, provided the sector is “past its point of peak negativity as a result of the royal commission”.
But with a slowing property market, he urged caution on any stocks with high exposure to the property market.
Caution was also urged by Jun Bei Liu, deputy portfolio manager of Tribeca Investment Partners.
“Investors better brace themselves for the next 12 months, as it’s likely to be a roller-coaster ride,” Ms Liu said.
“Particularly given all the trade tensions, and capital outflows from emerging markets, and the key risk [Donald] Trump — it’s unpredictable what he’ll say next.
“But global growth is intact with central banks tightening liquidity, but at a slower pace than expected.
“But I’m far more negative on our economy — Australia is a weak market, and the housing market in particular could be impacted by the royal commission.”
Trade war ‘might’ be great
The most optimistic analyst the ABC spoke to was perhaps Michael McCarthy, chief market strategist of CMC Markets.
Overall, he believes the Australian market is trending higher, despite the likely “rocky road” ahead.
“Ironically, a trade war might be great for Australia,” he said.
“Even though a slowdown in the world economy is bad for everyone, Australia is small relative to the rest of the globe.
“Any demand from the US or China that gets redirected to Australia might overwhelm the negative effects of a slower global economy.”