Forget the doomsayers, our sharemarket is on track for its long-term average

Australia’s sharemarket is going to shock the pessimists because it’s on track this calendar year to finish in line with its long-term average.

Just when you thought it was going to let you down, it looks as though the Australian sharemarket is going to make it after all.

It’s hard to believe after the months of doom and gloom; but the index hit a three-month high this week and so we are looking at a total return for the year which could be smack on the long-term average of 9 per cent.

And the message is, once again, when you have a market that will always pay more than 4 per cent in dividends it does not take a big lift to get it over the line to achieve acceptable – if not spectacular – returns.

The ASX 200 return for the year to date is up about 4.5 per cent and the dividend yield for the ASX 200 this year is about 4.3 per cent. There you have it – 8.8 per cent in total returns and we still have a few trading sessions to go.

And of course for older Australians with share portfolios loaded to the gills with fully franked stocks, the total returns will easily float up towards 10 per cent on the basis of what we know so far.

What’s more we are looking at shares beating other asset classes once again. The best returns on cash (fixed for two years this week) are about 5 per cent; and bonds represented by the Vanguard Australian Government Bond index are showing just 1.7 per cent for the year date. The only serious rival has been residential property where the CoreLogic estimate for year-to-date returns across the combined capitals is now above 9 per cent.

So what just happened?

The local market was showing a flat to negative return for long stretches of the past year as investors worried about everything from global recession to a collapse of consumer sentiment – not to mention the potential of the so-called “mortgage cliff” to undermine investor confidence.

In short, very little of this came to pass. Though there were times a US recession looked possible and consumer sentiment did slump sharply but more recently it is showing some signs of recovery.

As for what occurred technically in calendar 2023, that is relatively easy to explain. The market shot out at the start of the year with a burst of ludicrous optimism that could not possibly last.

As Plato Investment Management managing director Don Hamson says: “If you look back to mid year, you would probably be quite happy with how the calendar year is closing.”

Investors have short memories. Keep in mind if you had sold all your shares last February (and ignored the dividends that were coming your way) you would have made 8 per cent there and then.

As I pointed out in the third week of February: “If the Australian sharemarket continues at the pace set in the first six weeks of the year, we are heading for a total return this year of about 70 per cent … So either, the market has run too hot or the combined brains trust of the world’s investment banks and brokers are completely wrong.”

As investors we may have also been misled by the bad news on individual stocks and missed the fact that some unlikely sectors – especially the mining sector (ex-lithium) – have been powering higher in recent months.

You only have to look at this week’s MYEFO statement from the government to see how the mining sector has once again buoyed not just the ASX, but the entire national economy.

You can also see how repeatedly Treasury underestimating the iron ore price is a boon for successive governments. In the Budget, Treasury officials pencilled the price of our biggest export at $US60 a tonne – and it turns out the current spot price is $US128.

Similarly, while the analysts spent the year fretting about a decline in China as a resources customer, this never happened either. As a result, Rio on Wednesday was $129.50, up 13 per cent for the year to date and is testing its all-time high price of $134.40, while Fortescue sailed above its previous top price some time ago.

This bounce in the mining sector is a key factor in the better-than expected “average” return for the year across the ASX. There are also some solid performances from individual blue chips, most notably CBA up 7 per cent.

Originally published as Forget the doomsayers, our sharemarket is on track for its long-term average