With all the aversion to risk we have witnessed this year, it is hardly surprising that bourses across the world fared so poorly. In fact, in my little sample below, only the US market has shown positive figures year-to-date.
The UK market came 2nd, although down by more than almost 6% in AUD terms.
To me, this suggests that these two bourses have been heavily supported by their governments actions towards printing of their own currency (or Quantitative Easing).
Having said that, the Chinese economy has tanked 22% in its own currency [18% when translated into AUD equivalent currency], so the market has really sent a message of no confidence in the global economy. Hong Kong has suffered similarly - down 18.5%.
Meanwhile the ASX has fallen by 13% since the start of 2011 and the bourses of European "big guns", Germany and France have fared worse than any - 16.5% and 20% respectively.
Even Japan (-13%) after an earthquake, tsunami and nuclear meltdown fared better than Europe. That speaks volumes for how the markets feel about the Euro.
In AUD eq curr
23-Dec
2010 y/e
YTD
23-Dec
2010 y/e
Diff %
US SPX 500
1,265.33
1,258.83
0.52%
1,245.16
1,230.20
1.22%
Germany 30
5,878.33
6,914.30
-14.98%
7,558.61
9,047.76
-16.46%
UK 100
5,512.70
5,899.98
-6.56%
8,475.86
9,001.56
-5.84%
France 40
3,102.09
3,804.82
-18.47%
3,988.80
4,978.82
-19.88%
Japan NI225
8,479.34
10,229.24
-17.11%
107.05
123.21
-13.12%
ASX200
4,140.40
4,745.20
-12.75%
4,140.40
4,745.20
-12.75%
Hang Sen 40
18,629.17
23,034.39
-19.12%
2,357.72
2,895.99
-18.59%
Shanghai
2,190.11
2,808.17
-22.01%
340.23
416.83
-18.38%
So, money has fled Asia and Europe and headed back to the perceived "safety" of the US. However, if the US had not taken QE measures during the year and had it not introduced s179 special depreciation tax laws to accelerate capital spending/investment in 2011 - it is difficult to see how the US would have avoided recession, and with it, a fall in its bourse comparable with its European trading partners.
What that means for 2012 is anybody's guess, although probably one wouldn't bet against further currency printing since the collective "brainstrusts" around the world do not seem to have concocted anything more creative, despite the fact that it seems only to have fleeting short term psychological benefits for the markets and a safety cushion for financial institutions to the detriment of future generation tax payers and (who knows what we can expect for) long term inflation.
If the US have no other tools in the toolkit to arrest the malaise of their economy, the Eurozone don't even have currecny printing as an implement, currently. More spending cuts, tax increases, raising of the pension age has only done so much and it is difficult to foresee the citizens accepting further austerity measures. Hence, other alternatives will need to be found to avoid a mass exodus of the Euro and [potential] currency implosion.
What does this mean for the bourses?
Well, between the end of 2009 to date, the US has somewhat recovered from the GFC losses, again thanks to QE and the risk-off trade. Germany is positive thanks to the Euro/USD fall helping it's economic competitiveness {now being eroded because of fears of a Euro collapse}.
France, Japan and Australia have gone nowhere whilst the Chinese have lost one third of their bourse value in just 2 years.
2009 y/e
2009--> curr
US SPX 500
1,118.96
13.1%
Germany 30
5,859.58
0.3%
UK 100
5,388.11
2.3%
France 40
3,823.94
-18.9%
Japan NI225
10,655.46
-20.4%
ASX200
4,870.60
-15.0%
Hang Sen 40
20,475.01
-9.0%
Shanghai
3,227.78
-32.1%
How much further do they have to fall? That China should have fallen 45% more than the US. That Australia should have fallen 28% more than the US.
Maybe the US index is ready for a fall. If so, I think that with Australian interest rates at 4.25% and at A$1 = US$1.02, there's a lot of measures that can be taken to prevent the ASX following suit at a similar rate, albeit this does carry some risks to commodities' and banking stocks.
It's difficult to be positive about being long in the market again in 2012. I doubt the worst is over and who knows how desperate things may get in the Middle East and Europe and we all know, desperate men do desperate things.
Whether the Chinese bubble is about to burst and to what extent this has already been priced into local markets is uncertain.
However, no doubt there will be opportunities to be had - many short-lived, so probably another good year for traders and shorters and not so good for the investor who buys and holds - especially one nearing retirement.
Regardless of future events, may the year ahead bring you peace, contentment and satisfaction, however you so define.
And may the Mayan prediction not come to pass so that we may be free to forecast a more positive 2013 and beyond.
