Market Review: December 2008 Commentary

Markets have broken records across all sectors. Most in the wrong direction. The world economy has navigated through a period of profound and grave crisis. While the first half of 2009 will see deepening economic recession, there is cause for some positive reflection. Governments are acting decisively to support their economies and financial markets. As a consequence, the financial sector is intact. This is particularly true for Australia and New Zealand, where confidence is strong in our Banks. Westpac’s early December equity issue is clear evidence of this strength.
Greg Campbell, Tyndall managing director

Santa, Can We Please Have Less Volatility Next Year?

Yesterday, my daughter sat on Father Christmas’ lap and asked for a dog for Christmas. She is not going to get one (sorry sweetie), but the world is likely to receive a metaphorical dog for next year’s global economy. Incidentally, my daughter asked for a trampoline last year and if I can extend this metaphor; using a preschooler’s Christmas requests, for world financial markets, then 2008 brought us the most bouncy tramp we have ever jumped upon. Volatility was rife throughout the year and several measures broke records in the final three months. While uncertainty remains, volatility will stay high. This will continue to play havoc with equity markets because, as we have seen in the last few months, when uncertainty is extreme, sentiment overtakes fundamentals and rationality in the pricing of stocks and even bonds.

December is always a time of reflection on the year nearly over and I will continue this tradition by trying to recap what investors experienced in 2008. I could probably write a book (fortunately, far more eloquent authors than me will do exactly that about the 2008 financial crisis), but I will just look at the return highlights (or lowlights, as they often were).

The following table sets out the returns for the various markets (as represented by indexes) for the year to the end of November. It is not pretty reading. With the exception of New Zealand bonds, global bonds and cash, everything else has been relatively weak. Of course, in the scheme of things, 11 months is a relatively short period, but what a period!