A second straight year of strong gains on the share market will please investors, and the economy’s steady progression away from the mining boom could extend that run.
The ASX200 index rose by 12.3 per cent and the All Ordinaries gained 12.7 per cent in 2013/14, adding almost $168 billion to the value of the market.
The average return was nearly 20 per cent for the second consecutive financial year, when share price gains, dividends and franking credits are all added up.
With bonds and property prices also stronger, investors generally would be very pleased with 2013/14.
It is the first time since 2007 and the global financial crisis that the share market has notched up double digit gains in two consecutive years.
The Australian dollar also stayed resiliently strong above 90 US cents – stubbornly so if you are an exporter or exposed to the tourism sector.
One main caveat though, is that shareholders who lost 54 per cent of their wealth during the GFC have only recovered a bit over 60 per cent of those losses since.
Local shares were helped by a more positive view of economic conditions in 2013/14, which comes after years of GFC “aftershocks”, AMP Capital chief economist Shane Oliver says.
Those shocks included the Eurozone government debt crisis and faltering economic growth in the US and Japan.
Europe and the US are now looking better, and Australians are starting to believe the local economy could prosper without a mining boom, Dr Oliver said.
“Markets worry about what’s going to drive growth and there obviously has been concerns about how the Australian economy will grow with the mining investment boom slowing down,” he told AAP.
“Over the last year a lot of those worries have faded a bit because the low interest rate cuts were starting to yield benefits in terms of housing related activity.”
That activity is reflected by house price rises, and signs of a housing construction boom, Dr Oliver said.
The last year’s share market gains were spread relatively evenly, with strong rises in resources stocks and weaker lifts in the consumer staple sector, considered more cyclical than structural.
Retail stocks had been outstanding performers until May’s tough federal budget, which dented consumer confidence and triggered profit warnings from the likes of Super Retail Group, Pacific Brands and The Reject Shop.
CommSec economist Savanth Sebastian warns weaker confidence is likely to be a key theme of the August corporate earnings season.
“I think overall, CEOs are going to be pretty cautious about the outlook still, it is by no means a full blown recovery, it is still a patchy recovery and sentiment story,” he told AAP.
Still, Mr Sebastian thinks the ASX200 can hit a range of 6,000-6,200 points in the 2014/15 financial year, and Dr Oliver said it can get up to 5,800 points before the end of 2014, with no cash rate hike expected any time soon.
Mr Sebastian is also predicting more merger activity by cashed-up companies wanting to generate revenue.
Australians can expect to pay more when shopping online or travelling overseas, however, with the Australian dollar tipped to fall below 90 US cents by the end of 2014.
The median forecast for the currency on December 31 is 88 US cents, according to an AAP survey of 17 foreign exchange professionals.
Dr Oliver said the main factor expected to weigh on the dollar is possible interest rate rises in the United States next year, which will strengthen the greenback.