S&P/ASX 200 for 2013

S&P/ASX 200 over 2013.

Solid gains by the banks and the return of consumer spending have helped the Australian sharemarket post its best gain in four years and shrug off the downturn in mining investment.

With most local traders on holidays it was an unspectacular end to a solid year for Australian shares on Tuesday, as the benchmark S&P/ASX 200 Index edged down 4.6 points, or 0.1 per cent, to 5352.2.

It was the best year for the Australian sharemarket’s benchmark index since the 30.9 per cent rally of 2009, which came after the GFC crash of 2008 that knocked the index down 41.3 per cent .

Law firm Slater and Gordon ended 2013 as the index’s best performing stock, while mining group Silver Lake resources finished with the wooden spoon as the market’s worst performer, rounding out a tough year for miners as the resources boom finally cooled.

But despite the broader gains experts are warning that for the overall market, this year has been a standout and 2014 is unlikely to be as good.

In 2013, the local benchmark index climbed 15.1 per cent, beating the 14.6 per cent gains of 2012, fuelled by the combination of an improving global growth outlook, supported by easy global monetary policy, and record-low domestic interest rates saw money switch from safe haven investments like bank deposits and bonds into shares.

In December the S&P/ASX 200 rose 0.5 per cent as stocks rallied after the United States Federal Reserve announced on December 18 that the world’s biggest economy was in a strong enough recovery for it to begin reducing its extraordinary stimulus from January.

Despite a bull year, Australian shares lagged equity markets in the US, where S&P 500 is set to post its largest annual increase in 16 years, up 29 per cent. In Japan, the Nikkei Index is ahead 52 per cent for the year.

Well above average

Fund managers are expecting more modest returns for Australian investors in 2014. “The local market has had a solid year and is close to fair value. We expect Australian shares to deliver mid to high single digit returns over the medium to longer term,” Maple-Brown Abbott managing director Garth Rossler said.

Equity Trustees chief investment officer George Boubouras agreed that “the double digit returns of the past couple of years are well above average and investors should not expect this to be normal.”

After years in the doldrums, the consumer discretionary sector was the best performer in 2013, up 36.3 per cent, led by production company Twenty-First Century Fox, which jumped 57.3 per cent to $38.54, having been embraced by investors after spinning out its less profitable newspaper publishing assets in a demerger as News Corp.

Casino operator Crown Resorts was another heavy lifter in the sector, up 57.9 per cent to $16.85 as a push into Asia and the Barangaroo development in Sydney forged ahead.

Law firm Slater and Gordon was the best-performing stock, up 128.3 per cent at $4.84.

Heavy lifting

But it was the big four banks that did the most to lift the index in 2013, as low interest rates spurred a recovery in the housing market that helped the major lenders to grow their mortgage books.

Over the past year, Commonwealth Bank of Australia rose 25.1 per cent to $77.80, while Westpac Banking Corporation climbed 24.1 per cent to $32.38, and ANZ Banking Group gained 28.5 per cent to $32.23. National Australia Bank, the only one of the big four not to hit a record high in the second half of 2013, added 39.4 per cent to $34.83.

Among other industrial blue chip stocks, Telstra Corporation rose 20.1 per cent to $5.25, while Woolworths gained 15.4 per cent to $33.85 and Wesfarmers, owner of Coles, added 19.5 per cent to $44.04.

Mining slowdown

Materials was the market’s worst-performing sector in 2013, down 3.7 per cent, as the growth profile of the metals and mining industry shifted away from investment in new projects towards export expansion and productivity enhancements at existing operations. Junior explorers and developers were the hardest hit.

After a terrible start to the year, amid predictions of a dramatic drop-off in Chinese demand for Australia’s resource exports, the biggest miners rallied in the second-half as the slow down in Chinese growth was softer than forecast helping commodity prices pare their first-half losses.

The coking coal spot price, as measured by the Freight Investor Services Index, dropped 16.8 per cent to $US133.50 per tonne at December 31, off a low of $US129 in July.

The spot price of iron ore, landed in China, ended 2013 down 7.5 per cent at $US134.20 a tonne, off a low of $US110.40 in May - having defied analyst predictions it could dip as lows as $US80 per tonne in the second half.

At the year’s close BHP Billiton, is up 2.5 per cent at $37.99, while Rio Tinto is 3.3 per cent higher at $68.18 as new chief executives at the country’s two biggest miners implemented cost cutting strategies. The third largest iron ore producer, Fortescue Metals Group, finished the year 25.2 per cent ahead at $5.82, having impressed analysts with its accelerated debt repayments.

A depreciation in the local currency in the later part of 2013 benefited the biggest exporters.

At the local close on New Year’s eve, the dollar was buying US89.21¢, down from a high of $US1.06 in January after a year of sustained downward pressure

Gold smashed

Gold stocks got smashed in 2013 as the precious metal suffered its biggest annual fall since 1981, dropping 28.4 per cent to around $US1198 per ounce. West Australian goldminer Silver Lake Resources was the worst-performing stock of the year, down 83.9 per cent at 53.5¢.

Newcrest Mining, Australia’s biggest goldminer, shed 64.8 per cent to $7.80 as the problems of a weaker commodity price were compounded by rising debts and a looming shareholder class action.

Within the broad resources sector, energy stocks fared better than their mining counterparts the Brent crude oil price bounced off its April lows of $US97 per barrel to end the year flat around $US111 per barrel.

Australia’s biggest oil producer, Woodside Petroleum, closed 2013 up 14.8 per cent at $38.90, while Santos gained 31.7 per cent to $14.63 and Oil Search added 15.7 per cent to $8.11.