Best investments of 2007

THE past year was a case of 2007 of the good Aussie shares, the bad global shares and the ugly property trusts.

Best investments of 2007

CHINA has been the dominant force in shaping investment returns in 2007.

Not even global financial turmoil sparked by the credit crisis in the US could dent the surging Chinese share market or negate the effect China's booming economy had on Australian share prices.

Our biggest company, BHP Billiton, has grown 60.1 per cent in the year to December 30, while other companies exposed to China have fared even better.

For example, Andrew Forrest's Fortescue Metals Group has increased 538 per cent, including a 17.6 per cent gain on Friday that is believed to have propelled Mr Forrest past James Packer to become Australia's richest man.

All this from a company that has not yet exported any iron ore or made a profit.

"It's one of the most outstanding stocks of 2007,'' said Baker Young Stockbrokers managed portfolio analyst Toby Grimm.

Fortescue was not alone, with many other mining stocks enjoying share price gains of 100, 200 and 300 per cent.

Australia's total share market return to December 30 has been 16 per cent, said AMP Capital Investors. This is its fifth year of double-digit growth, ranking it ahead of many overseas markets.

However, China took the title of the world's best share market for the year, climbing 96.7 per cent as the country's economic growth continues to exceed 10 per cent annually.

AMP Capital Investors chief economist Shane Oliver said Asian share markets overall improved 36 per cent.

But international shares as a whole have again performed poorly, largely because of the strong Aussie dollar.

International shares dropped 2 per cent in Australian dollar terms. When hedged against Aussie dollar movements, the return was a positive 7 per cent.

"The Australian dollar rose 10 per cent against the US dollar and a bit less against other currencies,'' Dr Oliver said.

Other negative returns came from Australian-listed property trusts, down 7 per cent, and global listed property, down 20 per cent, after being a market star the previous two years.

"Problems in the US bank system have flowed on to trusts in the US,'' Dr Oliver said.

The sub-prime mortgage problems and global credit crunch were likely to affect investment returns in the first six months of 2008, he said, "but through it all the China story will remain alive and well''.

Baker Young's Mr Grimm said that despite the Chinese Government's efforts to slow its economy - the latest last week - the growth story was unlikely to stop.

"When a train is that big and heavy and moving that fast, it doesn't stop on a dime,'' he said.

However, the strong growth from China - and India - might slow a little.

"Perhaps darkness at the end of the tunnel is starting to appear,'' Mr Grimm said.

"But I would be tipping the Chinese share market to perform quite well for 2008. The Beijing Olympics in August should produce a degree of economic activity.''

Another improving investment performer in 2007 has been cash, with a return of 6.5 per cent.

Mr Grimm said term deposits and cash management trusts now were offering attractive no-risk returns that compared favourably with the volatile share and property markets.

"The way economic factors are piling up in Australia, I think the interest rate bias is upwards, not downwards,'' he said.

Bourke Shaw Financial Services principal Lawrence Orlando said while 2007 had been a case of the good Aussie shares, the bad global shares and the ugly property trusts, it was important for investors to look beyond one-year movements.

"Any financial strategy should be based on a long-term investment horizon to allow for corrections and fluctuations in market conditions,'' he said.

"For this reason investors should put their emotions aside.''

Global share market movements from January 1 to December 30

* Shanghai up 96.7%
* Hong Kong up 37.1%
* Germany up 22.3%
* Singapore up 15.4%
* Australia up 13.8%
* U.S. up 7.2%
* Switzerland up 7.2%
* Italy up 4.2%
* Britain up 4.1%
* France up 1.5%
* Japan down 9.7%

ASSET CLASSES
* Commercial property up 17%
* Australian shares up 16%
* Adelaide houses up 11.5%
* Global shares (hedged) up 7%
* Cash up 6.5%
* Global bonds up 6%
* Australian bonds up 4%
* Global shares down 2%
* Listed property trusts down 7%
* Global property down 20%
Source: AMP Capital Investors, SA Govt

AUSSIE SHARES
The best:
* Fortescue Metals Group up 538%
* Midwest Corporation up 440%
* Sundance Resources up 383%
* Riversdale Mining up 383%
* Ausenco up 332%
* Dominion Mining up 250%
* Aquila Resources up 234%
* Incitec Pivot up 233%
The worst:
* Metabolic down 95%
* Centro Properties down 88.6%
* Commander Comms down 87.6%
* Natural Fuel down 87%
* Senetas Corp down 80.3%
* Life Therapeutics down 79.1%
* St Synergy down 76.3%
* ERG down 71.8%

MANAGED FUNDS
The best:
* Challenger Wholesale China Share Fund up 75.5 per cent.
* Challenger China Share Fund
up 73.7%.
* Fidelity China Fund up 73.2%.
* Stockland Direct Office Trust Number One up 71.1%.
* SBT Classic Investment - Natural Resources Fund up 54.6%.
The worst:
* Vanguard Wholesale International Property Securities down 21%.
* Perennial Japanese Equities Trust down 20.1%.
* Perennial Japanese Shares Wholesale Trust down 20.1%.
* Skandia OIS Fidelity Japan Fund down 16.4%.
* Skandia OPS Fidelity Japan Option down 16.3%.

Source: Morningstar. Figures for year to November 30.