2011: Stock market in review

December 22, 2011, 2:47 pm By Julia Lee Yahoo!7

Let's also take a look at the companies you should avoid in 2012.

The year 2011 will be remembered for the disasters around the region including the Christchurch earthquake in New Zealand, the Queensland floods and Japan's earthquake/tsunami/Fukashima nuclear disaster.

Elsewhere around the world, debt issues were in focus. Standard and Poor's downgraded US long-term debt from the prized AAA rating to AA+ for the first time in modern history. Europe continued to be of concern in terms of sovereign debt and the solvency/recapitalisation needs of banks.

Top 3 ASX 200 Stocks:

  • Sigma Pharmaceuticals (SIP) up 122%
  • Iluka Resources (ILU) up 77%
  • Mesoblast (MSB) up 66%
The winner of the best turnaround award goes to Sigma Pharmaceuticals.. Turnarounds are risky — usually you see high risk and rarely high return. Choosing a stock that gives you the biggest turnaround results is often about kissing hundreds of frogs to find Prince Charming. So Sigma has been the Prince Charming of 2011. It sold off Arrow Pharmaceuticals (which it paid for too much for in 2005), used funds to cut through debt and concentrated on its remaining businesses. There are still risks for the company in 2012. For example, they'll have to cut on average 23% in their prices across 200 drugs due to the mandatory Government cuts in the Pharmaceutical Benefits Scheme.

Bottom 3 ASX 200 Stocks:

  • White Energy (WEC) down 89%
  • Energy Resources (ERAj) down 82%
  • Gunns (GNS) down 78%

White Energy had troubles with its joint venture company in Indonesia, PT Kaltim Supacoal (KSC) which resulted in a huge de-rating.. Their partner, Bayan Resources, preferred to sell coal directly onto the market at a lower price (compared with the price achieved via the joint venture). This put huge question marks on the viability of the Indonesian project. The future is unclear but an upgrade to the coal project makes sense given the lower prices likely to be realised on the current market.

Australian Market Performance Vs. International Markets:

  • S&P 500 (US market) down 4%
  • FTSE 100 (UK) down 9%
  • ASX 200 (AUS) down 13%
  • Nikkei 225 (JPN) down 17%
  • Shanghai Comp (CHINA) down 21%

Sector Performance:

  • Materials down 23%
  • Info Tech down 22%
  • Energy down 19%
  • Discretionary down 17%
  • Healthcare down 11%
  • Financials down 10%
  • Industrials down 8%
  • Property down 3%
  • Staples down 2%
  • Utilities up 3%
  • Telecom up 16%

A Look At 2012:

The key determinant for performance in the market in 2012 will be policy decisions from Europe and the US. Quantitative easing when announced will be good news for risk assets such as equities, commodities and the Australian dollar.

Domestically, expectations that interest rates will continue to fall should result in high yielding shares outperforming the market. Look for dividend yields higher than the cash rate in companies with positive earnings growth.

It will be an expensive environment for debt and funding so avoid companies that have the following:

  • Levels of debt maturing
  • High capital expenditure not supported by cash flow and
  • Mining exploration companies which require funds.

That's all from me for 2011. I wish you a safe and happy festive season.

Happy trading!

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Year In Review 2011

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