Australian Stock Market to Rise into Christmas

By Dale Gillham |

When COVID-19 hit Australia earlier this year, I don’t think any of us really understood the full extent of what would unfold in 2020. The country went into lockdown, the stock market crashed and retail investors found themselves with more free time resulting in many turning to the stock market to make money.

Consumer protections strengthened for CFD traders

In May, ASIC released a report about investor trading during the March volatility and the results were alarming, especially around leveraged trading. Two weeks ago, ASIC released a product intervention order (20-254MR) to strengthen consumer protections around trading in contracts for difference (CFD), which is well over due and, in my opinion, a step in the right direction.

While CFD providers disclose the risks of trading leveraged products, the reality is that most retail traders don’t read the disclosures and end up losing large sums of money due to the leveraged nature of these products. While the ASIC order seeks to limit the amount of leverage a retail trader can take on, it will not stop retail traders losing money, it will only limit it, as the majority are not highly educated or experienced in trading the stock market, let alone trading leveraged products.

That said, I applaud ASIC for its initiatives and encourage it to do more in order to protect retail investors. Other areas that need ASIC’s attention include high frequency trading and algorithmic trading as it increases volatility in the market, which is detrimental to retail investors.

What were the best and worst performing sectors last week?

Last week the market flipped given that all sectors ended the week in the green with Consumer Discretionary up 6.76 per cent followed by Industrials up 6.44 per cent and Information Technology up 5.68 per cent. The worst performing sectors included Consumer Staples up 2.10 per cent followed by Financials up 2.92 per cent and Utilities up 3.32 per cent.

Looking at the ASX top 100 stocks the best performers included Tabcorp Holdings, which is up 24.62 per cent on rumours of a bid by a private equity firm. Flight Centre, which was last week’s worst performer, also rose 24.42 per cent on positive news that travel would be opening up again. Vicinity Centres was also up over 15.70 per cent, while Scentre Group was up 14.29 per cent and Stockland was up 14.03 per cent.

The worst performers included Pendle Group down 8.04 per cent, followed by Fortescue Metals Group down 4.72 per cent and Treasure Wines Estate down 4.58 per cent.

What's next for the Australian share market?

Over the past five weeks, the market has been on a roller-coaster ride given that since the start of October, the All Ordinaries Index has risen over 7 per cent before falling over 5 per cent and last week it rose strongly up 4.27 per cent. Since 1 June, the market is up 8.9 percent, yet for this calendar year, it is down 5.99 per cent; so, if you have been struggling to determine which direction the market is heading, you are not alone.

Right now, both the US election and COVID are affecting markets around the world, which we all hope will settle, so things can get back to some degree of normality although this may be dreaming. That said, my position about the market has not really changed given that while I believe the All Ordinaries Index will rise into Christmas and possibly beyond, there is still a possibility the market will experience a short term down move before then.

Given the current volatility, it is important to remain cautious, which is why I continue to recommend you sit and wait for the dust to settle, while at the same time get ready for the opportunities that will unfold in the not too distant future.

For now good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.

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