Despite gains in April and May, investment markets dropped strongly as the June quarter drew to a close, providing investors with their worst returns in decades.

The slump came as investors worried that there were still more losses to come as a result of the credit crunch, which was sparked last year by the US sub-prime crisis, and signs that the slowdown in the US economy was spreading to the economies of its trading partners around the world.

Also increasing investor anxiety was the surging price of commodities like oil, largely resulting from rapid growth in emerging markets like China and India. Investors feared that higher commodity prices could boost inflation, prompting central banks to lift interest rates, which in turn could increase the already high costs of company borrowings and restrain consumer spending, further hurting company profits.

Australian shares
Australian shares produced their worst performance in 25 years, falling 1.8% over the quarter and 13.4% over the financial year to June 2008. Dampening investor sentiment were signs of a slowdown in the Australian economy, a drop in consumer spending and hints from the Reserve Bank that it might have to hike up interest rates later in the year to tackle rising inflation.

International shares
Major markets around the world also performed poorly due to surging oil prices, concerns about inflation and lingering credit issues. Overall, world sharemarkets fell 6.5% for the quarter and 21% over the year.

Japan was one of the few standouts, with its market returning 7.6% during the quarter in the absence of any inflation problems. German stocks slumped by 1.8%, French stocks by 5.8% and UK stocks by 1.3%. Chinese shares, previously star performers, fell 21% while other emerging markets delivered a mixed performance.

Listed Property Trusts (LPTs)
After years of strong performance, Listed Property Trusts were amongst the worst performing investment classes, falling 15.8% over the quarter and 37.7% for the year. Nervousness has dogged this sector ever since December last year when Centro revealed its funding problems in the wake of the credit crunch. Investors then began questioning the safety of some LPTs because of their past borrowing practices and the prospects of higher interest rates further soured sentiment towards this sector.

Fixed interest and cash
Returns from bonds were affected by expectations of higher inflation and a possible rise in interest rates. Overall, international bonds lost 0.6% over the quarter while Australian bonds fared better with a 0.4% gain. Cash was the strongest performer, returning almost 2% for the three months to end June 2008.

Financial year ending June 2008

Battered by the fallout from the US sub-prime crisis, investment markets proved to be difficult for investors during the financial year to end June 2008.

Firstly, there were the huge losses announced by major global banking groups as a result of the crisis. Then there was the credit crunch where nobody wanted to lend money, making it harder and more expensive for companies to borrow. And, then there was the slowing of the US economy and worries that this would affect the economies of the US's trading partners around the world.

Also increasing investor anxiety was the surging price of commodities like oil, largely resulting from rapid growth in emerging markets like China and India. Investors feared that higher commodity prices could boost inflation, prompting central banks to lift interest rates, which in turn could increase the already high costs of company borrowings and restrain consumer spending, further hurting company profits.

Australian shares
Australian shares produced their worst performance in 25 years, falling 13.4% over the year. In addition to the damage inflicted by the credit crunch, there were signs of a slowdown in the Australian economy, a drop in consumer spending and hints from the Reserve Bank that it might have to hike up interest rates later in the year to tackle rising inflation.

Buoyed by rising high oil prices, the energy sector produced the best performance but the materials sector also delivered a positive return.

International shares
Major markets around the world also performed poorly due to surging oil prices, concerns about inflation and lingering credit issues. Overall, world stock markets sagged 21% over the year.

Japan's Nikkei fell by 25.7% over the financial year, Germany's DAX by 19.8%, the UK's FTSE by 16.3% and the US's S&P 500 by 15%.

Listed Property Trusts (LPTs)
After years of strong returns, LPTs delivered their first annual negative return since 1989, a big fall of 37.7% for the year. Nervousness has dogged this sector ever since December last year when Centro revealed its funding problems in the wake of the credit crunch. Investors then began questioning the safety of some LPTs because of their past borrowing practices and the prospects of higher interest rates further soured sentiment towards this sector.

Fixed interest and cash
Although returns from bonds declined towards the end of the financial year as expectations for higher inflation and interest rates grew, international bonds gained 7.9% over the year and Australian bonds rose 4.4%. Cash returned a solid 7.4% for the year.