Stocks end bad year on high note

Australia’s sharemarket ended its worst financial year performance since 2011 on an upbeat note, jumping 1.8pc.

Financial volatility is the new normal as the fallout from Brexit clouds the new fiscal year.

The Australian sharemarket has ended its worst financial-year performance since 2011 on a decidedly upbeat note, jumping 1.8 per cent and closing out a tumultuous trading period marked by Chinese stock meltdowns, commodity price plunges and US rate rise ­gyrations.

But financial volatility appears to be the new normal as the fallout from Brexit clouds the new fiscal period and the prospect of a Trump presidency in the US haunts the outlook.

The benchmark S&P/ASX 200 index declined 4.13 per cent over the 2016 financial year — the first fall in four years — driven by losses in some of the biggest stocks on the market, which at one point dragged the bourse into bear market territory.

The 20 biggest companies in the nation were hammered, falling 12 per cent over the period. But leaving these giant corporations aside, the rest of the stocks that make up the benchmark index have collectively ended about 10 per cent higher.

GRAPHIC: Brexit blows

“It’s been an interesting year,” said Ross Barker, chief executive of the nation’s largest listed investor, Australian Foundation Investment Company.

“This year the largest stocks in the market have had significant headwinds — it’s the larger companies that are reflecting the global economy.

“The smaller companies are doing the best on their specific niches, such as healthcare companies or food companies feeding into Asia. They’re exploiting the pockets of growth within the economy.”

Energy stocks fared the worst on the S&P/ASX 200, with the unending downturn in oil prices wiping 25 per cent off the sector over the year.

Financial stocks, which account for about 40 per cent of the local market, slumped 9 per cent, while mining stocks were pushed 8 per cent lower as weak commodity prices continued to destroy profitability.

On the positive side, the healthcare and utilities sectors did well, rising 19 per cent and 18 per cent, respectively.

“Bond yield-sensitive stocks did very well; things like REITs and infrastructure had a very good year,” UBS chief investment strategist David Cassidy said.

“That was driven by the ongoing decline in bond yields and the global search for yield.”

The Australian government 10-year bond yield fell from 3 per cent to 2 per cent over the year, and the Reserve Bank cut interest rates to a record low of 1.75 per cent in May, with further cuts ­expected.

“It’s interesting the banks didn’t have a good year despite being in vogue in previous years for the yield play,” Mr Cassidy said. “The market was worried about security of dividends or dividend growth in that sector, along with capital requirements and signs of a pick-up in bad debts.”

ANZ tumbled 25 per cent over the year, followed closely by QBE insurance, which slid 24 per cent.

Investors were confronted with an unprecedented number of global market-moving events, which triggered waves of selling followed by the inevitable rush to buy back in. A 132 per cent rise in the Shanghai stockmarket over the year leading up to August ended in a $US4 trillion panic sell-off that sparked a global rout and the worst month for the S&P/ASX 200 since the global financial crisis.

Janet Yellen’s US Federal Reserve played hot and cold with the market leading up to the central bank’s first interest rate increase since the GFC, and global sharemarkets roiled again as concerns about ballooning debts in the emerging markets and plunging oil prices hit some of the world’s largest banks.

That led to the worst start to a calendar year on record for the local market, as the big banks were swept up in the selling, putting the S&P/ASX 200 into a technical bear market in February, plumbing a two-year low just shy of 4700 points.

The price of iron ore plunged to a near-decade low of $US38.30 a tonne in late December, while crude prices slumped to a 13-year low of $US27 a barrel in January. Origin Energy lost 45 per cent of its value over the year, while BHP Billiton slumped 31 per cent and Woodside Petroleum ended down 22 per cent.

But it was not all doom and gloom for investors who sniffed around in the right places. The best-performing stock was goldminer St Barbara, which booked an incredible 417.5 per cent rally over the year.

David Baker, managing partner of Baker Steel Capital, which holds an 8 per cent stake in the $1.4 billion miner, saw the turnaround before nearly everyone else. “Around 18 months ago we increased our holding substantially at around 10c or 12c a share,” Mr Baker said. St Barbara shares closed the year at $2.95. “The rest is history. It’s been a fantastic performer for us,” Mr Baker said.

It was a good year for the small-cap index, with big gains from China-exposed stocks such as A2 Milk and Bellamy’s, which surged 174 per cent and 138 per cent, respectively.