Just five stocks drove the lion’s share of the S&P / ASX 200 Index’s (Index:^AXJO) (ASX:XJO) gains in the past financial year, as investors went searching for yield. The index rose 17.3% in the 12 months to June 30, 2013, its best result since the 2007 financial year.
No prizes for guessing which stocks they were. With bank deposit rates sliding, investors switched to the equities markets to generate higher returns. Commonwealth Bank of Australia (ASX:CBA), Westpac Banking Corp (ASX:WBC), National Australia Bank (ASX:NAB), ANZ Banking Group (ASX:ANZ) and Telstra Corporation (ASX:TLS) between them, accounted for 80% of the gains. All five were offering relatively high fully franked dividend yields, and are viewed by many investors as safe, blue-chip stocks.
By early May, the index had risen by more than 20% and was headed for an outstanding year, but then US Federal Reserve chairman Ben Bernanke suggested the central bank was looking at cutting back its stimulus efforts. Global markets, which had become addicted to quantitative easing, hit the wobbles and lost ground, not helped by Chinese economic data that suggested the country’s economic growth was not going to be as high as expected.
Rate cuts by the Reserve Bank of Australia saw our dollar hit in a triple whammy of US and Chinese growth concerns and less attractive interest rates. The Australian dollar ended the year down 11% against the US dollar. That saw international investors bail out of the Australian market, forcing the index lower.
Most experts are tipping a strong year ahead for the Australian market, as the global economy improves and domestic growth strengthens under very low interest rates. Of course, expert forecasts have been proven to be as accurate as a dart board, and your guess is as good as mine to where the index will finish the year. The key is to focus on good quality companies with growth potential, and ignore the predictions.
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Motley Fool writer/analyst Mike King owns shares in Telstra Corporation.