Global Markets Overview – December 31, 2014

ASX 200 underperforms global markets

Global markets are set to finish the year with a bit of downside on the back of resurfacing Greece concerns. Some analysts feel another Greek political debacle will make it harder for ECB President Mario Draghi to pursue his grand plan of sovereign bond purchases given opposition from other northern nations such as Germany. There will be little event risk to look out for across the region today with some key markets like Japan already closed for New Year's related holidays. Perhaps China's final HSBC manufacturing PMI print, due out at 12.45pm, deserves some attention but this is only a revised figure. Activity is also likely to be subdued given several markets engage in shortened trading sessions.

Highlights from 2014

Reflecting on 2014, it has certainly been a challenging year for investors. It was not a year for complacency and the more active alpha seekers would have been rewarded with investors being forced to think outside the box. To put it into context, the ASX 200 is up a mere 1.2% for the calendar year as of yesterday's close. Compared to other global peers like the US (+13%), Shanghai (50%) and Japan (7%) we have significantly underperformed. As a result, to generate good returns took quite some effort and this is evident in some of the wild swings we've seen through the year. The local market hit its low point in February (5052) and peaked in August at 5680.We are not far off the median of these two points and this signals uncertainty to me. Perhaps the fact that two of our key commodities, being iron ore and oil, were both down significantly this year has been a big factor. Iron ore has dropped around 47% while brent crude has declined 45%. This has put the materials and energy plays under significant pressure; essentially nullifying the gains in other sectors that have performed well like the banks. The healthcare space has also been a significant outperformer with USD earners dominating the gains. ResMed for example is up a whopping 31% and is among the best performers. On the losing end, energy stock Santos has shed 44% almost matching the decline in oil for the year. Meanwhile, Qantas has been a dark horse, taking full advantage of the decline in oil prices and has managed to jump 120%. This year's tough nature has also seen investors turn to corporate activity for some comfort with IPOs and some M&A activity enjoying significant attention. Of course Medibank Private was perhaps the biggest event of the year as investors struggled to see opportunities elsewhere.

Flat trade expected

Ahead of the local market open, we are calling the ASX 200 relatively flat at 5424. Today's session concludes at 14.30 for the New Year's break and the market will resume trading on Friday. The only major surprise was the fact that iron ore finally popped back above $70/t on the last day of trade, taking it up to $71.15/t. This should keep the iron ore plays underpinned today. We have already seen FMG break a downtrend resistance which has been in place since it peaked in July this week. BHP and RIO have also enjoyed a reversal higher and will be ones to watch in the near term. Heading into 2015, many of the challenges the market has faced this year will be recurring. As a result we are likely to see similar themes continue. The beginning part of the year will be dominated by Europe and then we'll switch to the US towards the middle of the year.

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