The Australian Stock Exchange's (ASX) All Ordinaries Index may be less than 5 per cent higher on the year, but the key market indicator masks what has been a year of highly contrasting fortunes for investors. Those who plumped for the big banks and insurers, telecommunications groups and other leading industrial stocks have been handsomely rewarded, but investors who punted on a recovery in Australia's resources sector are nursing their wounds. Industrial shares have rallied almost 10 per cent this year, underpinned by a 15 per cent rise in the banking and financial services index and a 60 per cent gain in the telecommunications sector. At the other end of the scale, the All Resources Index has dropped 15.3 per cent, plagued by plunging world commodity prices and a deteriorating earnings outlook. Analysts are predicting something of a rerun next year, with banking and telecommunications to remain hot sectors and resources stocks still out of favour. The recommendations of Merrill Lynch are typical. The broker said investors should stick with defensive stocks with solid earnings profiles, such as the major banks and telecommunications giant Telstra, and should steer clear of resources 'where the continued downtrend in commodity prices poses clear threats to profitability'. The Big Four banks - National Australia Bank (NAB), Commonwealth Bank, Westpac Banking Corp and the Australia and New Zealand Banking Group (ANZ) - recently reported combined annual earnings of about A$6 billion (HK$28.83 billion) and look set to continue churning out strong profits. The banks - which all have solid balance sheets - revealed only modest provisions for bad debts and there were no huge surprise write-offs caused by dubious lending practices. Admittedly, ANZ was embarrassed by an ill-fated dabble in Russian bonds and the Commonwealth cut its losses on an emerging markets joint venture - but the sums involved were relatively insignificant. Australia's banks were not lenders to the speculative hedge funds which recently made spectacular losses and they have only minor exposure to troubled Asian corporate borrowers. With NAB pressing ahead with its campaign to convince the government to drop its ban on mergers between the Big Four, there is expected to be persistent takeover speculation next year which should help prop up bank shares including smaller groups such as Macquarie Bank and Bendigo Bank. The telecommunications sector performed remarkably this year, with Telstra hitting levels which not even the most enthusiastic analyst could have predicted. Shares in the country's second largest telecommunications group, Cable & Wireless Optus, have jumped 40 per cent since listing last month, while the third-biggest player, AAPT, has gained 55 per cent this year. A looming issue that could significantly affect the earnings of the big telecommunications groups is the Australian Competition and Consumer Commission's efforts to prod Telstra into providing competitors such as Optus and AAPT with greater access to its domestic call network. Analysts are also predicting continued interest in the shares of emerging telecommunications and Internet players next year. In the past couple of weeks, Internet media group LibertyOne debuted at a 150 per cent premium to its issue price, telecommunications reseller Telco Australia hit the boards at a 100 per cent premium and service provider Pracom also saw its shares double. The resources sector will start next year under a cloud, with the recently announced steep cuts in coal prices further eroding investor interest.