The Australian sharemarket finished the year on a positive note. The All Ordinaries Index closed December 3.5% higher at 4,882.7 points – its highest level since September 2008.
The Australian dollar weakened marginally in December, and is slightly below US90 cents to the dollar.
The All Ordinaries Index finished 2009 up 33%. However, it was not all one-way traffic. The Australian sharemarket hit a new 5 ½ year low on the 6th of March, before embarking on an extraordinary recovery.Before gazing into the crystal ball and commenting on the year ahead, I should first note that the last 9 months of 2009 vastly exceeded my (and most others) expectations.
This time last year I had pencilled-in the Australian sharemarket to increase by about 15% for the year. For the market to have increased by more than double this amount is nothing short of extraordinary.
So what can we expect for 2010?
First of all, it is not sustainable for the Australian sharemarket to continue at the same rate of growth to that achieved in the latter part of 2009.
Share prices have arguably reached fair value with future sharemarket increases to be driven by economic data and company earnings.
Expect the positive economic news to continue throughout 2010, albeit at a slower pace than 2009.
Early signs indicate that company earnings will also improve at the next reporting season. With this in mind, I believe that it is feasible for the Australian sharemarket to experience low double-digit growth for the year ahead.
The big issues for 2010 are interest rates, federal election and tax reform.
The RBA expects economic conditions to continue to improve, indicating a gradual increasing of interest rates.
The timing and rate of interest rate increases is largely guesswork. However, it is clear that the RBA will continue to increase interest rates unless economic conditions deteriorate. The next RBA board meeting is in February.
2010 is a Federal Government election year. With this in mind, don’t expect government spending to subside any time soon.
Government spending in 2008/09 helped Australia avoid a technical recession; however the legacy of government debt may well be an issue for future years rather than 2010.
This year will see the results of the largest review of Australia’s tax system contained in the Henry Report.
This review has been conducted by the head of Treasury, Ken Henry and will address all aspects of the tax system. It will be interesting to see what changes are adopted by the Government, especially considering this year is an election year.
Globally, sharemarkets followed a similar trend to that of Australia in 2009. Emerging markets in particular have been resilient throughout the Global Financial Crisis. The US market has stabilised and is poised for a continued recovery on the back of positive economic results in 2010.