The flat lining Australian stock market
David James |
23 March 2015
One of the curiosities of the Australian stock market is that it has been providing strong returns, but not capital gains. The AFR notes that global stock markets are doing very well:
"Global stocks had their best weekly rally in nearly two years, sending two of the biggest equity benchmarks to the brink of records, on speculation the US Federal Reserve will leave interest rates at zero past mid-year while European policy makers press stimulus.
The MSCI All-Country World Index surged 3.2 per cent for the five days, pushing the Nasdaq Composite Index to within 7 points of wiping out all its losses since the internet bubble. The Stoxx Europe 600 Index soared 1.9 per cent to close 0.4 per cent from its March 2000 high.
Global equities added more than $US1.5 trillion this week as the Fed acknowledged that economic growth has moderated, indicating it is in no rush to raise interest rates. Equities also benefited as pressure eased from a surging US dollar and plunging oil."
That five day jump is pretty startling, although the volatility suggests there is some risk attached.
Meanwhile, nothing is happening in the domestic market. The Australian stock market has yet to get back to its pre-GFC high, which was over six years ago.
That does not mean that it is a poor investment, though. In the last year, the All Ordinaries has given a return on 11.4 per cent. Yet the capital value of the market has gone nowhere. The returns are almost all coming from dividends. Share prices have gone nowhere:
This is of great significance to SMSF investors. Investment in the local stock market has become almost exclusively a franked dividend play. Investing in the ASX is more like a bond play than a share play; everything is about yield, not capital gain. It is, of course, greatly preferable to putting the money in cash; the local stock market has been a good place to be. But for those SMSF investors looking for capital gains as well as income, there is good reason to look offshore.