Christopher Niesche: Lost decade as Oz shares go sideways

Statistics show market failing to produce solid and consistent returns for investors as property prices soar.
House prices in Sydney and Melbourne are up 92 per cent over the past decade. Photo / Supplied
House prices in Sydney and Melbourne are up 92 per cent over the past decade. Photo / Supplied

It's the lost decade - the 10 years in which the Australian share market has moved sideways.

When the sharemarket closed on Friday February 10, 2006, the benchmark S&P/ASX200 index was sitting at 4871.50. Last Friday, it close at 4765.30. That means a loss of 2.2 per cent over the decade.

It's a sobering statistic for those who argue that shares produce solid and consistent returns over the long run.

Of course, it's been an unusual decade. First, shares were hit by the global financial crisis then over the past few months they've suffered the latest bout of market jiggers as investors around the world worry about the strength of China, the banks and global growth.

Anyone who had put money into the market, say 11 years ago, would be ahead by about 8 per cent.

Nonetheless, the Australian market is now firmly in bear territory - where shares decline 20 per cent or more from their recent peak, in this case last April.

The market lost 4 per cent last week alone, and even a generally positive start to the earnings season was not sufficient to soothe the fear of investors.

The Commonwealth Bank reported a record half year result which didn't show any signs of the increasing delinquent loans that had been worrying the market. Building materials manufacturer Boral reported a strong profit rise and chief executive Mike Kane said he expects housing construction activity to hold up at the current record levels.

The capital loss from shares over the past decade don't take into account dividends, which bring the total returns from the sharemarket over those 10 years to somewhere above 50 per cent, according to a recent report. That's better, but still not great.

Compare this with property. House prices in Sydney and Melbourne are up 92 per cent over the past decade and there's rental income on top of that.

What this does mean, however, is house prices are unsustainably high compared with wages, and residential property is facing its own lost decade.

Already there are signs.

The median house price in Sydney fell 3.1 per cent in the last three months of last year, the biggest fall in at least a quarter of a century and the first since the current house price boom began in 2012.

Furthermore, rents are increasing at their lowest level in two decades and there is a looming supply glut in Sydney as more homes are built.

While predictions of a 10 per cent fall in house prices are overblown, the good times are clearly over for property prices.

Perhaps in the next 10 years, shares will come out on top.

Mining sector

There's a section of the Australian business community which behaves like a spoilt, petulant teenager.

The latest industry to go storming off to its bedroom then return cap in hand looking for a favour is the Queensland coal industry.

The Queensland Resources Council wants mining companies to pay lower royalties and wants a cap council rates because it says a third of the state's coal mines are losing money.

A recent report - I'll leave it to you to guess who commissioned it - says 21,000 jobs have been lost in the past two years and the Government should act to protect the remaining 60,000 jobs.

There is no doubt coal companies are doing it tough. Coal prices have fallen through the floor as demand from China has slowed.

But let's not forget only a few years ago the mining sector was attracting record prices and making record profits thanks to the mining boom. The miners and their investors did very well out of this boom.

At the time, the then government wanted to introduce a mining tax, arguing the miners should share the outsized profits they were making from Australian resources.

The mining lobby mounted an aggressive and highly effective campaign against the proposal that saw the tax watered down then scrapped all together and contributed to the downfall of Kevin Rudd.

Now they say they're in trouble and they want help. Maybe the government should step in to help save some of the miners' jobs, but they certainly don't owe the mining sector any favours.

Imagine if you or I complained that we'd spent more than we'd earned this month and would like a bit of help from the Government. It's the sort of behaviour the business lobby, and no doubt the mining lobby, would condemn. Where are these people's savings? They would ask. Why aren't they taking responsibility for looking after themselves?

The mining sector's attitude to the government is a bit like a teenager's relationship with their parents. They want the Government to stay out of their way and let them get on with things, until they need help, when they return looking for a handout.

The difference with teenagers, however, is they eventually grow up.

Tale of two markets

Australian shares

Down 2.2 per cent in 10 years

House prices

Up 92 per cent in Sydney and Melbourne

- NZ Herald

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