It has been an incredibly tough year for sharemarket investors; probably one of the 3 toughest I have experienced in my 27 years in financial markets.
It was particularly bad in overseas markets with the NZ market out performing by being only down slightly for the year. Not only was the direction of markets an issue but even more significant was the huge volatility in markets.
In many ways it was a battle of “macro” vs the “micro”. That is, overall economic factors (the macro) vs company earnings (the micro).
The winner was probably “macro” with concern about economic conditions tending to dominate even though some companies have shown the ability to do well in difficult times.
It shouldn’t be forgotten that while it was a tough time for shares it was another double digit year of returns for bond investors, which reinforces the need for a diversified mix of investments.
It is likely that this volatility will continue in the first half of 2012 at least with the European crisis possibly coming to a head over the next few months.
This is because there is about 150 billion Euro of maturities for Italy alone for the first 4 months of 2012 and double this if you include France and Spain as well (that is, over $300 billion Euro).
This will be a real test for the markets, European politicians and the European Central Bank (ECB). The markets are assuming the ECB will get more actively involved and we did start to see some signs of that last week. However, markets would be happier if the ECB and politicians were more proactively trying to resolve Europe’s sovereign and banking system issues.
Through all this NZ economy and sharemarket should continue to out-perform the northern hemisphere developed world and there are still opportunities to invest in companies, which can do well even in tough times.
So it will be an interesting start to 2012 and we will be monitoring the markets closely over Christmas and New Year with our office open through this period.