The Australian equity market fell heavily in the first half of the month, dragged down by global equities as well as collapsing commodity prices. However, the market staged a substantial rally of almost 8% to close up 2.7% for the month. This result was one of the best performing markets globally.
The S&P/ASX Small Ordinaries Accumulation Index rose by 3.9% in December, outperforming large caps. Over the calendar year the small sized companies outperformed the larger companies by 7.6%.
The two big drivers of activity on global sharemarkets in December were the oil price and the US Federal Reserve meeting. Oil prices continued to fall after the International Energy Agency warned that the global oil oversupply could worsen next year, while the market spent the first half of the month burdened by the expectation of an expected rise in the federal funds rate – which finally occurred on 16 December with an increase of 25 basis points. Although investors appeared to greet the decision positively on the day of the announcement, US sharemarkets gave back the gains of December 15 and 16 in the subsequent two days.
The S&P 500 Accumulation Index finished the month down -2.0%. The key Asian regional benchmarks were mixed over December: Nikkei 225 (-3.6%), Shanghai Composite (+4.6%), and Hong Kong Hang Seng (-0.4%).
In 2015, the major countries that are still stimulating their economies saw the best sharemarket gains: the German DAX rose by 9.6% while the Japanese Nikkei rose 9.1%.
Listed Property & Infrastructure
The Australian REIT sector, as measured by the S&P/ASX 300 A-REIT Accumulation Index, returned 4.0% in December, outperforming its global counterpart and the broader Australian large cap market. The major corporate action for the month saw Dexus Property Group (DXS) and Investa Office Fund (IOF) announce an agreement under which Dexus would acquire Investa. DXS and IOF shares rose 1.0% and 7.3% respectively on the day of the announcement.
Domestically, the Bloomberg AusBond Composite Index gained 0.33% in December while the Bloomberg AusBond Bank Bill Index, which comprises lower risk and shorter dated securities, gained 0.19%.
Globally, government bond yields were little changed during the month. More concerning for fixed income investors was fear of a possible ‘crash’ in the junk bond market following a spike in yields on junk bonds. Third Avenue Management announced that it was suspending investor withdrawals from its junk bond fund, soon followed by similar announcements from several other funds.