The window dressing that tricked the market

Bonuses and other EOFY benefits had a rollercoaster ride last week as the Australian bourse rose and fell two per cent. Overseas investors are being scared off and it's making for a dangerous marketplace.

Something very strange happened in the Australian stock market during the last week – in the two and a half trading days before the June 30 balance date our market jumped about 90 points or just under two per cent as measured by the ASX 200.

Then on July 1, the first trading day after balance date, guess what? We lost the whole lot, falling around 90 points or two per cent.

That means that all those June 30 calculations showing that shares rose by 17 per cent for the 2012-13 year were astray as were the bonuses and other benefits calculated at June 30 rather than July 1.

Now in fairness to the Australian market our rise in the last couple of days of the financial year reflected US and Asian markets. But the July 1 Australian fall did not take place on those markets.

Because the professional traders have pipes that are connected to the Australian stock market, our shares are a very dangerous place to be short-term trading. Those using the pipes gain too much of an advantage. Similarly, trying to work out who is moving markets becomes too hard.

Nevertheless it would seem that there was at least an element of what I call 'window dressing' to artificially boost the June 30 market.

However more important than the 'window dressing', there is a global message for this country – many overseas share investors are disenchanted with Australia.

Around 1 pm yesterday I filed a commentary entitled An overseas spoiler for the financial new year showing how overseas investors were suffering badly in the Australian share market because of the twin fall in our currency and shares.

During yesterday afternoon and last night when overseas markets failed to follow Australia down, I realised just how much the unhappiness of overseas investors is holding our market back.

And who can blame them. Politically we are in a mess with the Morgan opinion poll showing Kevin Rudd can win the next election even though he has lost a big chunk of his cabinet because they don’t think he can do the job. The Rudd opponents’ view was reinforced by his unfortunate remarks about Indonesia. Meanwhile, Australia faces some hefty problems with the end of the mining boom which will require a strong government.

Our dollar shows periods of severe weakness and looks to be headed below 90 US cents with a long-term goal of say 80 cents. That really minces long-term share returns for unhedged overseas investors.

But it does help a vast number of Australian enterprises and I am encouraged by the fact that it’s just possible Rudd will make some changes to reverse the anti-business stance that was evident in sections of the Gillard government.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles