Share Market Wrap 26th September 2008
Australia’s personal wealth has been hit hard over the past year, which in my opinion has been attributable, in part, to hedge funds forcing share prices lower through short selling. Last weekend ASIC announced a ban on naked and covered short-selling of all securities, managed investment products and stapled securities, which I believe is a good move as better policies need to be adopted to protect the integrity of the market.
That said I don’t believe the issue lies with the principle of short selling as this provides liquidity for the market, but I do have a problem with the lack of transparency in regard to short selling. Currently anyone who takes a large position is required to declare it to the market, but the same rules do not apply for short selling. Given this, large hedge funds have been able to continually force prices down anonymously without any recourse. The end result, as usual, is that the average Australian loses whilst the big end of town profits.
The good news, however, is that the government released draft legislation this week that will require the disclosure of covered sale transactions in the Australian market. If this legislation is passed, it will go a long way to reducing the extreme volatility that we have experienced over the past 12 months.
So what can we expect in the market?
Last week was one we would rather forget, with the All Ordinaries Index falling heavily to a low of 4575 points. The positive news is that following the announcement of the $700bn rescue package by the US government, the market moved up 4 per cent to regain some lost ground by last Friday.
The upward momentum continued on Monday with the market closing up another 4 per cent to 5050 points, which was possibly due to institutions covering their short positions.
For the market to continue to rise from here we need to see a real change in sentiment, although in the short term I believe the uncertainty is likely to remain. Given this, I expect the All ordinaries will most likely trade sideways during the next week or two while the market digests the impact of the US rescue package and the outcome of the ban on short selling.
Dale Gillham
Chief Analyst
Wealth Within
Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.
For more information please visit www.wealthwithin.com.au
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