All Ords Report 30 June 2017

Do you feel that your opinion doesn’t count? Well, the harsh reality is that it often won’t.

How many times have you observed the big end of town wield their influence over decision making that impacts us all. The saying that ‘money talks’ has existed throughout time. But is it money that’s stopping us from having a say?

I’ve heard countless stories about Australian communities rallying together to block a development and the developer wins. Even if the council sides with the community and rejects the development application, the developer can go through Victorian Civil and Administrative Tribunal (VCAT) or the courts and as long as the developer meets the requirements in the legislation, the final decision favours the developer. It’s your community and yet you really don’t have the final say.

So too, when it comes to the share market, many shareholders tell me they feel they’re not treated equally to big institutional investors. I’m often asked why institutional investors are given preferential treatment ahead of retail investors. The listed companies say it’s not feasible to operate any other way. But with technology being what it is today, there must be a better way for the system to be fairer for everyone.

So is it the big end of town that’s the problem or the system?

There is little point in directing your frustration towards a company who is operating within the parameters of what is currently permitted.

By joining groups such as the Investors Association of Australia, you can have more influence on listed companies. This is where ‘the power of one’ can become ‘the power of many’.

Groups can and should join together and lobby the Government for change, after all they are supposed to work for all Australians.

If you want your opinion to count, first find a way to have your point heard with the ‘right’ people who have the power to influence decisions. Government bodies are more likely to listen when you use the ‘power of many’.

You also need to understand how the system works. Are you fully aware of what the laws or regulations permit? And remember, time spent researching online and speaking to relevant Government bodies is just as important as collecting signatures for a petition.

What do we expect in the market?

On Thursday, the Australian share market appeared to have resisted a further sell-off as it traded back towards a psychological barrier at approximately 5880 points. If the recent rise is followed by a couple of weeks of strong buying by big institutional traders, the market will resume its bullish trend.

While I believe the market is more likely to rise than fall, it is still trading below the before-mentioned important level and today the market reversed recent gains. Therefore, it is currently at a cross-roads, which means the market may take a week or two before we can confirm whether the decline to 5670.7 points in early June is the short term low our analysis indicated would occur in June or early July. That said, be mindful that there is still potential for a further short sell-off, which is the case whenever we see a market decline.

Remember, waiting for confirmation of a low, rather than speculating about whether it has occurred, is the lower risk way to trade.

Also note, the market often trades lower during May or June and July is typically a strong month.

During the time when the market is in decline observe the headlines. There will be emotional triggers adding to the sell-off. Last week headlines read, ‘$27 billion wiped from the Australian exchange in a day’. To put this into perspective, the market fell by around 1.5 per cent on the day, which is a typical range when a market low is close.

To ensure you remain calm and understand the market learn as much as you can.

Global markets

This week, the US market has pulled back. Commentary suggests that there’s a move from growth to value type stocks. When managed funds are making a shift in their strategy this can slow the rise in these markets. The analysis indicates that the Dow Jones is currently trading at an important resistance level at around 21,500 points and therefore it is logical for this market to slow temporarily.

Economic conditions in Europe and the US are continuing to improve, which supports investor confidence and share prices more broadly. Germany’s DAX has recently broken through to a new all-time high and is now taking a breather.

Closer to home, the Shanghai Composite Index (SSEC), one of the two exchanges operating in China has been rising. The SSEC has been subdued for some time, having traded in a lengthy sideways range since early 2016. The current analysis indicates that the SSEC is likely to rise to around 3250 points in the short term, however, it needs to clear 3300 points to break clear of the sideways move. A rise is good for the region, as it will indicate that confidence in China is improving.

Dale Gillham is Chief Analyst at Wealth Within