ASX boss Elmer Funke Kupper diplomatically pointed at a bull that was only half in the room when he briefed on ASX's 5.3 per cent lower, $171 million December-half profit on Thursday.
He noted that while share prices had rallied on either side of Christmas here and overseas, share trading volumes had not, and neither had overall sharemarket trading values. A price rally that occurred without them was "a little bit fragile", he said. Someone like me who doesn't have to sell ASX shares as an investment destination might say that's fragile, spelt S.E.L.L.
Even after its 119 point, 2.3 per cent drubbing yesterday on fears that the US Federal Reserve's easy-money policy might end sooner than expected, Australia's benchmark S&P/ASX 200 Index was still about 20.5 per cent higher than it was on June 30 last year, and 14.8 per cent higher than it was in mid-November.
The average daily number of ASX sharemarket trades in the December half was 7 per cent lower than it was in the June half, however, and 12 per cent lower than in the December 2011 half. The average daily value of trades in the latest half was $3.77 billion, down from $4.37 billion in the June half. Average trading values ranged between $6 billion and $7 billion a day at the height of the sharemarket boom in 2007, and $5 billion and $6 billion days were common in 2010 and 2011.
In January, as shares soared, the average daily trade value slipped further, to $3.6 billion. Trading as a percentage of total market value, a velocity measure, has slipped from 105 per cent to 76 per cent in a year.
The arrival of a competing exchange, Chi-X, at the end of 2011 is a factor, but not one that changes the story materially. Average daily trading values for ASX and Chi-X combined in January were just over $4 billion, the same as they were six months earlier.
Nor is it a local phenomenon. The World Federation of Exchanges collects data from all the exchanges including the ASX and it has reported the volume of equity transactions worldwide fell 22 per cent to $US49 trillion last year, even as individual share prices rallied. Combined capitalisation of the world's markets rose by 15.1 per cent in 2012, with US markets rising 17.2 per cent, European and Middle Eastern markets up almost 12 per cent, and Asia-Pacific markets including the ASX rising 15.4 per cent.
Numbers such as those go to the amount of belief behind the rally that began to accelerate in November as fears of a European sovereign debt implosion eased, and the yield on dividends from quality companies began to look inviting.
In short, there isn't much conviction so far. If there was, volumes would be rising. There would be also be evidence of heavy bond sales as investors freed up cash for share buying, and that piece of the jigsaw is also missing.
It doesn't mean the rally can't get decent foundations. What is needed is for credible signs of better global economic momentum to translate to greater confidence and financial activity, Funke Kupper says.
One risk is that a tailwind that has propelled Australian shares for nearly three decades might temporarily become a headwind.
Superannuation contributions will continue to increase the weight of money looking for an investment home here as the super guarantee rises from 9 per cent to 12 per cent by mid 2019 (assuming Labor's pledge is honoured). Contributions of about $80 billion flowed into super funds with assets of $50 million or more last year. On that basis the scheduled first quarter of a percentage point shift in the super guarantee from 9 to 9.25 per cent in July this year is worth about $200 million, about half of which would go to shares.
The potential new headwind is a reweighting and downgrading of shares in the super savings pool - and it could be a stiff breeze.
It hasn't happened yet. Consultants Towers Watson estimate that the percentage of Australia's $1.6 trillion super pool invested in shares actually rose from 50 per cent to 54 per cent last year.
Australia's share weighting is the highest in the world and its 15 per cent weighting in bonds is the world's lowest, however, at a time when investors are contemplating the lessons of the global crisis, and when baby boomers are thinking increasingly about capital preservation and less about capital gain.
Super savers in other countries have significantly reduced their exposure to shares since the crisis emerged in 2007. On the current value of our superannuation pool, every one percentage shift out of shares would deduct $16 billion from the sharemarket.
Funke Kupper probably gets tired of pointing it out, but the sharemarket is no longer the ASX's biggest money spinner.
It has been the focus of regulatory changes, including the decision to let Chi-X in, and the source of angst about dark pools and high-frequency trading, and its contribution to group revenue has fallen from 25 per cent to 18 per cent in the past three years.
For the ASX, the derivatives market that offers long positions for the bulls and short positions for the bears in a range of assets including fixed interest and shares is more important: over the same three-year period it has boosted its contribution to total revenue by 7 percentage points, to 31 per cent.