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!

Australian 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.

Australian Stock Market Worst Return In 26 Years

The Australian Stock Market experienced its worst return for 26 years for the 12 months ending June 30. Australia's All Ordinaries Index lost more than 15% for the 2007/2008 year.

The chart below shows the movement of the All Ordinaries Index during the year.

Australian Stock Market Performance for 2007/2008

As you can see, the market tried valiantly to recover from the low point in March and was looking good until mid May when the wheels fell off again. But what does all of this mean for the average Australian investor?

Less Than Super Returns...

Perhaps the broadest impact will be to everybody's superannuation balances. As we all start to receive our superannuation statements in the mail for the past year, there will be a fair amount of disappointment. We aren't used to getting negative returns. Depending on the investment option chosen, you may experience anything from low single digit negative returns right up to double digit percentage losses.

Value Investor's Paradice?

For those investors among us with a value bias, the Australian stockmarket hasn't looked this attractive in years. After a prolonged period of strong sharemarket price growth, the past 6 months has thrown up plenty of bargains. And not just the minnows - blue chip stocks as well. The financial sector with banks in particular are presenting some good value but price weakness is not limited to this sector.

The pain has continued since the close of the financial year as well. The following chart shows the performance of the All Ordinaries over the past week.

All Ordinaries This Week

As you can see, after the close of the financial year on Monday, the index continued to fall throughout the week with the exception of today.