The Australian sharemarket – what happened during 2010, and what will happen in 2011

The Australian share market was a volatile beast in 2010. But what really happened? Where did the money go?

Wealth Within chief analyst Dale Gillham, one of the country’s most respected share market commentators, provides a thorough analysis of this year’s market movements, while predicting where the money will go in 2011.

 2010 – Where the money went

“Looking at the Australian share market this year it has been very much a story of two halves. The first half 2010 the market was down across the board by and average loss of 11.6%, with the worst performing being the top 20 at -12.25%. Looking at sectors in the first half 2010 Industrials were the worst performer at -20.59%, followed by Property Trust at -14.55% and Financials at -13.27%. The consumer staples did the best at only -5.35% falling at only half of the rate of the overall market.

Whilst during the first quarter 2010 the Australian share market made some solid gains, with money flowing into most sectors of the market, as you can see by the figures above this was completely eroded in the second quarter with concerns over the MRRT, rising interest rates, Chinese tightening policy and concerns about global debt.

The big money sat on the sidelines for a few months waiting for the market to either move up or down. Then at the end of the third quarter money really began to flow back into mining related areas such as Materials, Energy and Industrials. A number of sectors were left behind, such as consumer discretionary, financials and telcos.

The second half 2010 saw money coming into the smaller shares outside the top 200, and this was driven by commodities stocks especially gold and copper. This can be shown by the fact the best performing index from 1 June 2010 was the XKO Top 300 at 15.81% followed by the XAO Top 500 at 12.53%, whilst the worst performing index was the Top 50 at only 9.65%. The sectors that performed best from 1 June 2010 were XGD Gold at 26.56%, followed by materials at 23.16% and Industrials at 19.58%. The worst performing sectors from 1 June 2010 were Telecommunications at -13.27% due to Telstra’s poor performance, then XDJ Consumer Discretionary and Consumer Staples at 3.29 and 3.59% respectively, which show the numerous interest rates rises by the RBA are taking effect.

Retail spending is down and I believe the market will be waiting to see what the retail sales figure are like in the lead up just before Christmas and then the final figures in January. This is weighing down Consumer Discretionary. The question is do we really expect retails sales to return to boom time pre-GFC levels?? It can take consumers 2-3 years to recover from the effects of something like the GFC. Consumer staples tried to move up with WOW and WES both rising at the same time, however, this sector has since been sold down.

Financials have continued to be held back by concern over a possible property bubble building and banking reforms. And we saw money move out of Energy until mid year because of global concerns and talk of oil and gas oversupply.

Health was really held back this year with reforms in the US and some companies being impacted by the US dollar. This sector is still mixed – CSL has been a clear winner over recent weeks.

Risk averse money continued to flow into gold and gold stocks in 2010 and this is likely to continue in the short term.

Media fell out of favour and is an area like consumer discretionary which has taken longer to get going again following the market pull back mid year.”

Where will the Australian Share Market go in 2011?

“I expect money to continue to flow into IT, Materials, Energy, and Industrials in the early part of 2011. I like CPU in IT, BHP and IPL in Materials, BLY and CTX for Energy and LEI in Industrials

Consumer staples, financials and consumer discretionary will eventually attract investment, however, this is likely to be off to a slow start. ANZ, SUN in financials and LLC on the property side preferred over property trusts.

The recent banking reforms include approval for the banks to issue covered bonds which are expected to be a big win for the larger banks.

With ad markets slowly recovering along with improving employment statistics we are likely to see media return to favour.

Mining – materials energy and industrials all will benefit from some big mining deals planned for 2011. BHP and Russia’s largest miner are in discussions about a Joint Venture and when something starts to happen the market is likely to get excited.

Many Industrials will get the flow on benefits of the continuation of the mining boom at the start of 2011. However, I think the MRRT will come back into the lime light as the govt work to put in place the legislation next year, which will create jitters across the market towards the end of the first quarter of 2011. In around Mar/Apr we may see the market turn down for around 6-8 weeks. Money is then likely to flow back in with further gains likely in the latter part of 2011.”

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Dale Gillham

Chief Analyst

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.

For more information please visit www.wealthwithin.com.au