CHARTS: Australia's economy in 2015

The anticipation of the US Federal Reserve bringing an end to the era of zero interest rates, a slowing Chinese economy, and intense property speculation in Australian major cities were among the major themes of financial markets for Australian watchers in 2015.

It was a volatile year for Australian financial markets, at least compared to recent norms. Stocks rose, then slumped, as early optimism was replaced by concerns surrounding the outlook forearnings growth and stuttering growth in China.

Some of the best performing stocks of recent years were hammered, while some that were previously under pressure provided spectacular turnaround stories. We were also treated to several examples of just how lucrative the Chinese consumer could be to Australia, and Australian firms, in the years ahead.

The once high flying Australian dollar continued to slide, dropping from above 80 cents at the start of the year to below 70 cents in September, taking it back to levels last seen shortly after the global financial crisis hit its nadir in early 2009.

Two rate cuts from the RBA, taking the cash rate to a record-low level of 2.0%, along with steep falls in the price of iron ore worked in tandem with US dollar strength to place persistent pressure on the Aussie.

While lower interest rates sent some asset classes lower, they also worked to send others to unprecedented levels. One needs to look no further than Sydney and Melbourne’s property market to see that monetary policy continues to work.

Yes, it was another year of highs and lows – or both if you’re talking about the Chinese stock market. Here’s just a few of the charts we think tell the story of what happened over the past 12 months in markets.

The Australian dollar fell heavily, again

Having started the year at .8168, as of yesterday the AUD/USD has fallen exactly 10 cents, or 12.3%. It briefly traded below the 70 cent level during September, a level many analysts expect it will remain below in 2016.

The ASX 200 started the year with a flourish before gravity took hold

Initially the index rallied more than 10% on the back of strength in financials and materials – the two largest sectors by market capitalisation on the index. Having briefly tested the 6,000 level in March and April, the index subsequently sunk close to 20%. Year to date it remains down 6.1%.

Australia’s stock market is dominated by financials and miners, and both have had a year to forget

Record low interest rates and expectations for firm Chinese commodity demand propelled both the financials and materials indices higher in the early parts of the year. However, slowing earnings growth from financials and plunging commodity prices eventually took their toll. Materials is currently off 23.8%, overshadowing a smaller 3.6% decline for financials.

BHP Billiton – known as ‘the big Australian’ – became a significantly smaller in 2015, at least in terms of market capitalisation

Weighed down by steep declines in the price of iron ore and crude oil – along with the Samarco mine disaster in Brazil – shares in the largest mining company in the world have fallen 36.6% year to date

Woolworths shares got crushed

Shares in Australian retailer Woolworths have also fallen heavily in 2015. Intense competition in the sector has led to margin compression, softer sales growth and a share price that has fallen 23.6% since the beginning of the year.

Qantas staged an epic rally

Buoyed by a steep decline in aviation fuel costs, along with a modest improvement in the domestic economy, shares in Qantas have taken off. They have risen 62.2% this year.

Blackmores share price reminded us just how powerful the Chinese consumer could become.

Shares in Australian vitamins maker Blackmores have gone stratospheric this year, rising by more than 500%. Huge demand from China has propelled sales and profitability.

Australian interest rates were reduced to the lowest level on record

In February and May the Reserve Bank of Australia cut the official overnight cash rate, taking it to just 2.0%, the lowest level on record. This time a year ago many were forecasting that rates would remain steady throughout the course of 2015.

Sydney and Melbourne house prices jumped again

Assisted by record low interest rates and increased activity from housing investors, house prices in Sydney and Melbourne took off, leaving other capital cities in their wake. They both increased by more than 10%, more than doubling the gain for third-placed Brisbane of 4.5%. Note the acceleration in house price growth after the RBA cut the official cash rate to 2.0% in May, along with the recent slowdown caused by affordability constraints, increased availability of housing stock, out of cycle rate increases by Australia’s largest banks and measures introduced by APRA to stymie growth in lending to housing investors.

The rise and fall of home loan lending to investors

Since the RBA’s last easing cycle began in 2011, home loan lending – particularly to investors – took off. Lending to investors briefly surpassed that to owner-occupiers, hitting the highest level on record. While lending to investors has dropped sharply in recent months, it appears that it has been merely replaced by a renewed uplift in new lending to owner-occupiers which currently sits at record highs.

Wages growth hit a multi-decade low

The ABS wage price index.

On the back of increased labour market slack and subdued levels of inflation, the ABS’ wage price index slid to the lowest level on record in the September quarter of 2015. The weakness was predominantly led by a sharp deceleration in private sector wages. Wages are currently growing at the slowest level seen since the early 1990s recession.

The iron ore price was hammered…

Weakening demand for steel product in China, along with a sharp uplift in seaborne iron ore supply from the likes of Australia and Brazil, wreaked havoc on the iron ore price. Earlier this month the spot price for benchmark 62% fines fell below $40 a tonne for the first time on record. While it has subsequently bounced in recent days, year to date the price has still fallen by 43.7%.

… as ore exports from Port Hedland continued to grow.

Iron ore exports from Australia’s largest iron ore loading port – Port Hedland – have continued to grow in 2015, although the pace is slowing. With production from Gina Rinehart’s majority-owned Roy Hill mine now coming online, it will be interesting to see whether export volumes will accelerate yet again placing additional pressure on prices as a consequence.

Chinese economic growth is slowing

China’s economy grew by 6.9% in the year to September 2015, the slowest annual expansion recorded since the first quarter of 2009. Many expect it will continue to slow next year, although forecasts are wide-ranging. The Chinese government is likely to announce next year’s growth target early in the first quarter of next year. Demand in China is crucial for a range of Australian companies because the nation is our largest trading partner.

Chinese stocks went bananas, then crashed

If there was one thing financial markets were fixated on in the middle of the year it was the trials and tribulations of China’s stock market. By mid-June the benchmark Shanghai Composite index briefly rose more than 150% from where it was trading just one year earlier. Then, suddenly, the market began to crash, falling close to 50% over the next two months. The use of leverage by largely unsophisticated investors, along with lofty company valuations, contributed the spectacular rise and fall seen in the index. The tiny size of China’s stock market relative to its economy meant the fallout was contained, but it was a signpost to the challenges China faces as it transitions its economy towards consumption.

Visitor arrivals to Australia took off

Led by surging growth from China, the number of short-term visitor arrivals to Australia took off in 2015. In the year to October 2015, 7,293,800 visitors grace our shores – an increase of 6.5% from a year earlier and the highest level on record. The lower Australian dollar and rapidly increasing middle class wealth in Asia – particularly from China – suggests this trend will likely continue in 2016.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.