By the end of 2013 the ASX All Ordinaries Index (XAO) & S&P/ASX 200 Index (XJO) both gained around 15% which was a healthy above average annual gain with the long term return for stocks being around 10%. But we need to keep the 2013 gains in perspective and not get carried away by some of the media hype and excitable comments being made by fund managers & analysts etc.
Firstly, the annual return from shares portfolios that is often discussed also includes dividends so that needs to be remembered. Also your portfolio may only see the full 15% capital gain if you purchased a fairly broad range of stocks around the first day of trading and then sold them around the end of the year. For longer term investors like myself, the rise in stock prices in 2013 is mostly an unrealised gain and much of it could vanish in just a week or so of trading.
Of course depending on the shares in your portfolio you may have also posted bigger gains than those reflected by the ASX 200 Index or even perhaps finished the year with a loss!
Certainly 2013 turned out to be better than I thought as I expected the market to rise between only 8-10%. But I am not getting too excited about the performance of the market last year as my view is that the All Ords/ASX 200 are now in the over-bought zone and will soon both be back down in the 4800-5200 range.
Anyway let’s now have a look at some 2013 charts to see how the year played out for stock market investors.
S&P/ASX 200 Index (XJO) 2013 chart
Up first, the S&P/ASX 200 Index, which shows how the market rallied from what I would describe as being slightly oversold at the start of the year to being right at the top of my trading range in May before falling all the way back again.
In June the market rallied again on the back of interest rate cuts, the changing political landscape & some optimism about the global economy then kept on going. There was then a correction (remembering that corrections are normal) in November however the ASX 200 rallied again and recovered most of the lost ground.
Some will see the above chart as being a bullish indicator for Australian stocks or say it shows that a clear rising trend has emerged. My view is quite simply that the market has swung mainly within the trading ranges I have discussed for some years now and will most likely do the same again this year.
There is by the way an opportunity for investors to essentially invest in the performance of the ASX 200 Index and this is via the SPDR ASX 200 Index Fund (ASX:STW). I am not recommending this fund, but merely mentioning it so readers can do their own research. I have also included the 2013 chart for this fund below to show how it essentially tracks the ASX 200 Index.
SPDR ASX 200 Index Fund (STW) 2013 chart
Last year was generally kind to stocks but not so to the price of gold and many gold related stocks. As usual I will use the ASX ETFS GOLD to review the movement in the gold price and as the chart below shows, it was mostly all downhill for gold in 2013.
ASX listed ETFS GOLD (GOLD) 2013 price chart
Overall ASX GOLD slid back for most of the year apart from a rally from June to August which rekindled the fire in the hearts of those who had been confidently predicting (for years) that the gold price would surge past the 2000 USD/Oz level. But the rally was short-lived and gold finished the year down by almost as much as the ASX 200 Index finished up.
Generally speaking, 2013 was not the best for resources & mining stocks and there seems to be some consensus now that the “super” commodities cycle has either come to an end or is nearing the end. (something I have been talking about for a couple of years now) It is worth remembering that just a few years ago there were many “experts” predicting that commodities prices would keep rising and that the commodities boom would last for decades. Those experts seems to be keeping a low profile of late.
BHP, WPL, NCM, RIO 2013 stock price chart
The chart above shows the share price movements for 2013 for BHP Billiton (BHP), Newcrest Mining (NCM), Rio Tinto (RIO) and Woodside Petroleum (WPL). Clearly 2013 was a very bad year for Newcrest Mining investors with its share price being savaged. It was a flat year for the big miners BHP & RIO, although there was a chance to pick up these shares near the middle of the year when their prices weakened. On the other hand WPL posted a gain of around 10% for the year but this was below the gain posted by the ASX 200.
So generally speaking the resources and mining sector was not the place to be in 2013 and this sector is probably not going to do much better in 2014. However there may be times when stocks like RIO and BHP drift towards being oversold thus becoming interesting for long term investors or even shorter-term traders.
The big four banks had a very good year posting gains of just over 20% to around 35%. Financial stocks in general also had a good year and it is largely this sector that lifted the ASX 200/ASX All Ords. As I have mentioned before, the Australian stock market will not generally rally unless either the miners and/or the banks are on the rise.
CBA, ANZ, WBC, NAB 2013 stock price chart
It would seem unlikely for the big four banks to post gains in 2014 similar to what they posted in 2013, but if interest rates stay low (or go lower) then maybe they will ride on the back of any future property price/home price rises.
Finally a quick look at the ASX Small Ordinaries Index (XSO) which is useful to watch as it tracks how smaller companies are faring.
ASX Small Ordinaries Index (XSO) 2013 chart
My only comment regarding this chart is to state the obvious, which is that the ASX Small Ordinaries Index slipped backwards in 2013 and I believe this is worth keeping in mind. Also worth remembering is that outside of the financial sector within the ASX 200 range of stocks, the performance of many shares (including the large miners) was not quite as stellar as much of the media commentary tends to suggest.
Yes 2013 was an above average year for stocks, but reality is that the performance of many large banking and finance related stocks masked the weakness in other sectors. It also means that the Australian stock market rally in 2013 was not broad-based that that to me suggests that the market is reflecting the weakness being seen in the wider Australian economy and that the stock market may struggle to hold onto last years gains over the next 6 months.
(Disclosure: I indirectly have interests in shares in RIO, CBA & STW)
This article was written by Greg Atkinson who is the Managing Director of Ohori Capital. Greg is from originally from Sydney but now works and resides in Japan. He can be followed on twitter via GregAtkinson_jp