Australian shareholders gain robust returns in 2019

After a challenging 2018, investors were rewarded in 2019, as the Australian share market reached new highs and delivered nearly 20 per cent growth during the calendar year.

While the ASX, as measured by the All Ordinaries Index, remained relatively flat during the fourth quarter of 2019, the annual result was buoyed by earlier quarters in the year.

The strong growth of the market throughout the year seemed at odds with weakening underlying economic conditions, rising trade tensions, Brexit and Middle East tensions, and concerns about inverted yield curves and potential recessions.

Central banks reversed monetary policies to counter these issues, with the US Fed and the Reserve Bank of Australia (RBA) easing their policies and the European Central Bank (ECB) reinstating quantitative easing.

This monetary easing, and its potential for creating growth, combined with the low starting point ended up delivering strong returns for shareholders.

Growth was felt across the market with the strongest gains seen in some healthcare, IT and industrial stocks, while some non-bank financials and energy stocks lagged behind the market.

Consumer discretionary stocks were a mixed bag, as overall retail was constrained by weak consumer spending. However, some specialty retailers delivered better than expected results.

During the year, the Australian market finally surpassed its 2007 highs due to the strong lead in overseas markets like the US, monetary easing and the rising demand for yield as interest rates declined.

We expect the market gains to continue into 2020, but at a more subdued rate.

Infrastructure spending, exports and migration should keep the Australian economy ticking over, but growth is likely to remain under 2 per cent due to the housing construction downturn, subdued consumer spending and business investment, and the ongoing drought and bushfires.

Further interest rate cuts are expected by the RBA, with the possibility of quantitative easing to stimulate the economy. This should see further growth in equity markets, however it is likely to be less broad-based and more stock- and sector-specific.

The 2019 recovery began in January, when the market rallied and delivered a strong first quarter result for shareholders. The ASX continued to climb during the second quarter and ended on a 10-year high, while the share market reached a new all-time high during the third quarter.