LDB’s quarterly share market review: 2017 year in review

With just a few trading days left in 2017, the Australian share market is shaping up for a good end to the calendar year.

This is largely due to the strong rally since October, with the All Ordinaries Index finally breaching the 6,000-point mark for the first time since the Global Financial Crisis. It has remained above that benchmark since then.

This was a welcome relief for investors. The August/September reporting period was mixed, but generally fell short of expectations, contributing to a lengthy flat period through the July to September quarter.

Disappointments

After watching its share price drop by more than 36% from its January high, Telstra surprised the market with a 20% cut in the dividend.

However, the more sustainable yield combined with plans to diversify and transform the company has been met with positive reactions.

Banks have been a drag on the market, with the big four finishing the year flat or slightly down.

This was due to lower revenue growth, rising capital requirements, increased legal action and falling consumer sentiment.

The recently announced Royal Commission adds another component of uncertainty to this sector.

Despite healthy retail sales figures and fairly good results, retail stocks have suffered from negative sentiment associated with low wages growth and the entry of Amazon into the Australian market.

However, the consumer staples sector, representing the things we all need, delivered strong performance. And with Amazon now launched and its pricing revealed, the online retailing juggernaut may not represent the threat many of its competitors feared.

High notes

Resources and energy stocks have fared better due to recovering commodity and energy prices and reductions in debt.

Both the energy and materials sector indices outperformed the overall market this year. The industrials sector was another strong performer, and healthcare was a standout sector, dominated by CSL.

Despite a bit of a bumpy ride, shares in the blood products company gained about 50% over the year.

Most of the gains on the Australian share market this year have come from the smaller end of the market, with the Small Ordinaries Index (which comprises ASX listed companies ranked 101 – 300) far outpacing the ASX200.

Outlook for 2018

Some indications of increases in capital expenditure and business sentiment have helped the market and we hope this continues into 2018.

Large infrastructure projects are just getting underway in some states and employment is strong. However, low wage growth is still a problem that could continue to weigh on the retail sector.

Despite the overall low growth environment, our outlook for the market is cautiously optimistic for 2018.

However, we believe that diversification across all asset classes is the best option for consistent wealth creation.