So who is buying Australian Shares? The Fundamentals behind why this market is a buy!
Over the past six months, we have seen the Australian Share market push higher, as savvy investors are profiting from buying flows and positive results. With lower interest rates, cash is becoming increasingly less appealing and as such, the money has to go somewhere. Where? Well take a look at the chart below and you will see – Australian shares have been a major beneficiary – have you profited from this too?
However, it is not just retail money being forced out of cash and in to buying Australian Shares
With the move down in the Australian dollar, below parity and as low as 96c, versus the US dollar, there have been big flows this way. One of my institutional sources, nameless of course, pointed out that their buy ticket volume on a given day have been going through the roof, each time there has been a dip in the Aussie dollar. Money flowing straight into the top 20 and in massive size. We aren’t talking thousands, we are talking millions and regularly.
The big question is why?
There could be a number of supporting arguments behind this. One is of course, a straight currency play ie an expectation of a bounce in what could be an oversold Aussie, providing some downside protection on newly acquired shareholdings. However, there are better, leveraged and easier ways of getting Australian Dollar exposure than buying Australian shares.
Yield is the new buzz word
The search for yield – where to park your money in order to actually earn something from it, is becoming a key asset allocation decision. Traditionally, cash has offered yield, but not really any more, with global interest rates at historic lows. Then of course, there are the bond markets – but again, yields are paper thin for example US 10 Year Treasuries are offering 1.96% – now don’t spend that all at once!
By buying Australian Shares, investors seeking yield get to tick several boxes.
1) Australian shares have and continue to be one of the higher yielding markets.
2) Dividends in Australia are treated very differently to the US, in terms of the tax side of things. As such, particularly on the big blue chips, the dividends are paid “fully franked”. This means the tax is already paid, at the 30% level, making the yield even more attractive. As an aside, if you manage your own Super, you really should be targeting these fully franked yields, as for you, the news is even better!
3) Australian Shares have been a laggard, compared to the US and as such, there may be some perceived catch up bounce/opportunity available to those with Aussie exposure.
Running live positions across the market, as we do, our traders are also seeing the volume come through, providing a great and profitable opportunity for those with equity and equity option exposure. Over recent months, and not unexpected, we have seen money pouring into the banks. Understandable when we have just gone through the dividend season, (still have NAB to go on 30thMay) where fully franked dividends have been enjoyed by shareholders, giving them, ANZ as an example, 5.2% yield before lifting a finger. Did you get onto our ANZ covered call trade to profit from this? Did you know that we offer a custom dividend scanning tool, to help you make sure that you don’t miss the “free money” in the form of dividends?
However, the banks are almost done, in terms of paying their dividends and sector rotation – that flow from one area of the market to another – has seen the banks slide in favour of other areas of the market – which is totally natural. We have an assortment of spread trades set and helping our clients to profit from this – CBA being an example a put spread we are using.
As active Traders
As active traders, this is what we look and live for – the flows from one sector to another, rather like seasons of the year. So buying Australian Shares is on the agenda from the big end of town to the retail investor. How about you?
More than anything, the shifting flows in the markets underline the importance of having a more dynamic approach to the market – and one that utilises an assortment of strategies. Last week, I wrote an article on why we use multiple trading strategies as being flexible in your approach provides results!