The Australian stock market has finished trading for the year with the ASX All Ordinaries & S&P & ASX 200 both closing around 15% lower for 2011. It has been a disappointing year for share market investors (yet again) with even the mining stocks stumbling lower over the last 12 months. Many investors might be under the impression that the market slid back over the last few months of 2011, however the Australian stock market has been trending down since as far back as April.
I started this year in a cautious mood however when the All Ords/ASX 200 hit 5000 in the first quarter it looked like I had totally misread the market. Now it’s clear I was not cautious enough and that the crisis in Europe was much more severe than I initially estimated. Foolishly I had thought the Europeans would be able to come together and implement a plan to deal with their debt crisis, but alas that was not to be the case.
Over the last few months investors have also become increasingly concerned about the Chinese economy which is something I have warned about for more than a year as well as warning that commodities prices were set to fall…which they have.
If we have a look at the All Ords & ASX 200 Index charts for 2011 it’s easy now (in hindsight) to see that investors basically lost their appetite for Australian stocks during the year.
ASX All Ordinaries Index 2011 chart
What was not apparent back in April was that the Australian stock market had essentially reached its peak for the year and would spend the next 8 months treading downwards.
Back then, the IMF, OECD & G20 were talking about a global economic recovery and so it appeared that the All Ords would push higher – perhaps even close up near 5500.
But as this year progressed a series of events sapped the confidence of Australian stock market investors. Many started to realise for example that the Chinese economy would be affected by the slowdown in Europe, Japan and the United States.
From July the markets became a lot more volatile and from around that point onwards the Australia market essentially moves sideways with a few big swings up and down as we can see on the candlestick chart of the S&P/ASX 200 Index below.
S&P/ASX 200 Index 2011 chart
Quite clearly the down weeks (shown in red) where more frequent than the up weeks (shown in blue or black). This pattern gradually chipped away at the market from April with the big weekly correction in July basically shifting the trading range a step lower.
The previously resilient mining stocks were not able to support the ASX All Ords/ASX 200 and as commodities prices fell, so did they.
Fortescue , BHP Billiton, Rio Tinto 2011 stock price chart
It was only a matter of time before prices for hard commodities such as copper & iron ore fell back despite the bullish howls of mining executives and analysts. My view is that the mining cycle has turned and we are in for some years of lower prices for a range of industrial metals and other hard commodities such as coking coal.
Stocks reliant on consumer spending also fared poorly in 2011 as the charts for Harvey Norman Holdings (ASX:HVN) and David Jones (ASX:DJS) below illustrate.
Harvey Norman Holdings, David Jones Ltd 2011 stock price chart
It wasn’t a good year for Australian retailers and the weakness in the domestic economy became more apparent as the year progressed. The economic woes in Europe also seem to have sapped consumer confidence as the year drew to an end and not even the traditionally strong Christmas shopping season was enough to give the stock prices of Harvey Norman or David Jones a lift.
But there were some stocks that bucked the trend. Telstra for example has been trending upwards now for quite some time and it seems people still want their pizza, as Domino’s Pizza Enterprises (ASX:DMP) finished the year significantly higher.
Domino’s Pizza Enterprises 2011 stock price chart
Finally let’s have a look at how the Australian All Ordinaries Index (XAO) has fared against the Dow Jones Industrial Average (DJIA) in the United States.
ASX All Ordinaries Index versus Dow Jones Industrial Average 2011
I don’t want to read too much into this chart apart from saying that in terms of points, the Dow Jones has clearly outperformed the All Ords and if commodities prices continue to weaken, then this is likely to be the case next year as well.
Anyway that’s enough for 2011. I wish readers all the best for the New Year and we can worry about what the market might do in 2012 later!
Greg Atkinson is the editor of Shareswatch Australia and the Managing Director of Ohori Capital He is originally from Australia but currently resides in Japan. He can be followed on twitter via @GregAtkinson_jp