Posted on 24 July 2018
The Australian share market posted total returns (including dividends) of 14% for the 2017-18 year. This was the sixth straight financial year of positive returns.
The sectors that brought the market down included the banks, telecommunications and utilities, accounting for almost half of the total market. The banks were the hardest hit, with CBA being the hardest of those being down 12%. AMP while not strictly a bank is now down 80% below its listing price 19 years ago.
Telstra fell a further 39% over the year as it cut dividends and faces more cuts in coming years, its share price is now 70% below its dot com peak 19 years ago.
Most other sectors had a great year. Resources were the best performing, benefiting from rising commodities prices and finally a weaker Australian dollar. Miners were up, led by BHP and RIO up 45% and 32% respectively. Fortescue was the only exception. In the energy sector, all of the major oil, gas and coal stocks were up strongly on higher oil prices. The tech sector rode the global tech boom with Computershare up 30% and Carsales and REA both up 30+%. Healthcare stocks were aided by global healthcare strength with CSL, Cochlear, Fisher & Paykel and Sirtex all performing strongly.
Despite the good year, the outlook going forward is rather subdued, the banks are facing a housing and construction slowdown, rising compliance costs and management severely distracted by the fallout from the Royal Commission. Falling house prices, credit restrictions and possible rising interest rates likely to hurt local demand for products and services while exporters face lower global demand if the trade ware escalates.
One of the big impacts on investment portfolios this year has been the Australian dollar and how much the currency risk in international shareholdings was hedged or unhedged.
Hedged returns do better when the Aussie dollar is rising or flat (usually in a boom) and unhedged returns do better when the Aussie dollar is falling. This year we have seen the USD rise and the Aussie dollar fall. Hedged returns have been flat as global shares have stalled but unhedged returns have continued to rise. It shows how the performance of global shares for unhedged Australian investors can be affected as much by the currency as the underlying companies or markets.