Research Monitor - March 2016 Edition Research11 Jan 2016

The main themes that defined 2015 were growth fears regarding China, pressure on commodity prices, the US Federal Reserve interest rate decision, energy markets and the migrant crisis and market volatility.

The accumulation return of the Australian share market was 2.8% for calendar year 2015, but price return was negative 1.3%, meaning 4.1% came from dividends. We anticipate a similar dividend yield from the market in 2015 (we estimate around 5.0% from the leading stocks before franking) but hopefully a bit more in the way of capital growth.

The Diversified Financials sector posted the best returns during 2015 (up 38.3%). Merger and Acquisition activity bolstered the performance of the Transport sector (up 33.6%) and the Food, Beverage and Tobacco sector also did well over the year (up 31.0%).

The worst performing sector during 2015 was Energy (down 27.7%) on the back of weakening oil prices. The Capital Goods (down 15.5%) and Materials (down 15.2%) sectors also performed poorly during the year.

The Chinese share market has contributed to a great deal of volatility in global share markets and the ASX/S&P 200 in 2016 is off to its worst start in over a decade. Weakening commodity prices and nervous Chinese policymakers are fuelling share market weakness and a US Fed determined to lift rates further has left investors more nervy than optimistic.

We expect better returns from Australian shares this year and recommend that portfolios should rotate out of large caps into mid caps for even better returns.


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