The "poisonous political" environment around the federal government had contributed to effectively thwarting any real recovery in the Australian economy and had dragged down equity performance since 2009, according to an Australian equities boutique manager.
Platypus Asset Management chief investment officer Donald Williams said "the poisonous political environment around the federal government" had created a very challenging environment for businesses to grow profits, and was one of the main reasons Australia's equity market had been one of the poorer performing western equity markets since 2009.
"Despite the promising performance of the Australian share market since the start of the year, the correction that started in mid-April turned nasty as June kicked off," Williams said.
Australia had lagged other markets since the low of equity markets in February 2009, plus the tough line taken by the Reserve Bank of Australia (RBA) in 2010 and last year had slowed economic growth, "although fortunately the central bank has seen sense and provided two interest rate cuts in the last two months", he said.
AMP Capital chief economist and head of investment strategy Dr Shane Oliver agreed political factors had dragged down the market, but said three bigger issues had combined to thwart a recovery.
These were the RBA's policy on interest rates, the strong Australian dollar and Chinese monetary tightening.
"The Reserve Bank's tightening of rates has weighed on incentives for investor flows," Oliver said.
"Second, the strong Australian dollar, when it went to parity, was a critical line in the sand. I thought the strength of the Australian dollar would have less of a negative impact."
Third, Chinese monetary policy tightened in late 2009, "and the worries about China had flowed through. So, it was these three factors - high interest rates, the strong [Australian dollar] and China - which were the big issues, in addition to the political atmosphere", he said.
Macquarie Private Wealth head of research Riccardo Briganti said the underperformance of the Australian share market was the result of its nature and specific domestic conditions, "particularly relatively high interest rates and the strong Australian dollar, although these have eased recently".
"Equity markets have been under pressure recently as European concerns return, Chinese growth again comes into question and domestic conditions remain uncertain. These global growth concerns have seen resource stocks impacted as demand and price assumptions are reconsidered," Briganti said.
Williams said that in the next year, things should improve slowly, however, the rate cuts administered by the RBA so far (125 basis points) would only start to help by the last quarter of this calendar year.
Europe would also hinder Australia's recovery, he said.
"Some form of Eurobond is unavoidable and, if structured properly, should underwrite the debts of all the eurozone countries. If the eurozone doesn't survive, it would be at least as big a disaster for Germany as for any other country there, as its exports - the growth engine of the German economy - would be devastated by the appreciation of its currency," he said.
Oliver agreed: "Europe looks like a joke and the US is not much better. At least we get things done down here."
Williams and Oliver said the way the Australian market had traded since the lows of the global financial crisis felt very similar to the market experience following the 1987 crash.
At that time, there was a major event followed by an extremely tough economic environment, and from 1988 to 1991 the market closed within 50 index points of 1500.
"We have been tracking a very similar path over the last four years," Williams said.
"Eventually, of course, the market will enter a sustained recovery. But in our view, the local market will continue to range trade until the earnings outlook improves, which is much more likely to be in fiscal 2014 than 2013 as market forecasts suggest."
