Saturday, January 3, 2009

Australian Stock Market Worst Annual Return Ever?

The Australian stock market gave investors a wild ride during 2008. It was not a year for the fainthearted. An investment in Australian shares as measured by the All Ordinaries index is down by almost 43% - that really hurts!

Graph of Australian shares for 2008Australian Stock Market Chart - 2008

The All Ords started out the year at 6,462.8 and finished at 3,659.3. Along the way it touched a high of 6,462.8 on the first trading day of the year before plunging to a low of 3,201.5 on 21 November. As far as I can tell, this is the worst performance recorded since 1900.

Australian Shares Not All Bad News...

Unless you've had to sell shares, the good news is that this is only a paper loss. Granted, it might be some time before the sharemarket regains the levels it was at in 2007, but if you have a long term view and focus on the fundamentals of the businesses you're invested in, there should be light at the end of the tunnel.

Even better, if you have cash available, there are some screaming bargains on offer at the moment. I think that prudent and discerning investors will do very well in Australian shares over the medium term. But I suspect there could be more volatility on the way.

The All Ordinaries has recovered slightly from it's low point in November but as we've seen in recent months fear and panic can wipe out any tentative gains in the blink of an eye. Baring any more catastrophes (by that I mean large corporate collapses or bailouts) the next interesting time will be when listed companies start reporting their financial results to the ASX in a month or two.

Until now, the market has been anticipating the impact of the global slowdown in economic activity. Once we start seeing some actual financial results, we'll have a much better idea of how the various sectors, and the individual companies within those sectors are faring.