Stocks prove buoyant
$1.695
THE Australian sharemarket has proved to be not just resilient during the pandemic, but positively buoyant, although the outlook for the year ahead is not as rosy.
The S&P/ASX 200 index surged 13.02 per cent over the past year to close on Friday at 7444.6 points.
It was the benchmark index’s best rise since an 18.4 per cent jump in 2019 and the fifth biggest since a 31 per cent rebound after the global financial crisis. The rally came as investors largely brushed off a resurgence of Covid-19 associated with an outbreak of the Delta and Omicron strains.
The ASX 200 started the year at 6587 points and crashed through fresh records multiple times in the middle of the year to hit a closing alltime high of 7628.9 points on August 13. That peak was during the profit reporting season and when all-important iron ore prices were well above $US200 a tonne.
The broader All Ordinaries Index rose 13.55 per cent to 7779.2 points for the year.
On Wall Street, the S&P 500 index – widely regarded as the best single gauge of large-cap US stocks – rocketed more than 27 per cent over the year as investors bet on strong company earnings growth in coming quarters. In the UK, the FTSE 100 was up almost 15 per cent and in Japan the Nikkei gained a modest 5 per cent.
IG market analyst Kyle Rodda said the S&P 500’s performance was “extraordinary by historical standards”.
“It’s been a good year for stocks overall. Most developed market equities have seen solid returns,” he said.
He said the Australian market had underperformed compared to many of its peers. “In short, you can blame that on one overarching factor: China,” he said.
Looking ahead, fund managers and strategists see less upside potential for the sharemarket in 2022 as pandemicera stimulus is dialled back in response to inflation and easing Covid-19 restrictions.
Still, they retain some optimism based on the outlook for the economy and interest rates. The reopening of the economy in the wake of pandemic restrictions, high consumer savings ratio, rising employment growth, healthy corporate balance sheets and low rates should give a constructive backdrop for Australian equities.
Wilsons Advisory equity strategist David Cassidy said strong vaccine coverage should underwrite the domestic recovery this year.
“The prospect for a high single total return from equities over 2022 remains our central case,” Mr Cassidy said. “It is hard to get too bearish around the domestic economic backdrop for 2022 as the economy continues to chase down a more normal setting.”
Geoff Wilson, chairman and founder of Wilson Asset Management, said equities were likely to be the best asset class this year but with more muted returns than in 2021.
He expects recent volatility to continue as central banks start winding back easy monetary policy settings, new Covid-19 variants emerge and economies deal with inconsistent lockdown measures. Whereas in 2021 equities experienced “the most favourable policy conditions possible” since the pandemic, 2022 would be “a year for monetary authorities to walk the tightrope of unwinding easy monetary policies”.