Could there be a method to the madness of the new highs on the ASX/200? In looking for a cause, we are assuming the markets are rising for a rational reason. However we note it could be just an unrestrained orgy of gleeful buying. “The market seems to have a lot of money,” says Amanda Cook, an advisor at Macquarie Bank in today’s Australian. “I don’t think anyone was expecting this kind of move. A premium is being built in-that has to be what is driving the move.”
Hmm. Maybe it’s just a lot of money driving the move. We’ll have a go at explaining it. Changes to this year’s Federal budget allow super investors to contribute up to $1 million to their super fund. For investors over 60, this contribution is essentially tax free. What we suspect is happening is that those property investors who can sell are selling their investment properties in order to sock the money away in the super fund tax-free.
It’s a one-off incentive. But it’s lucrative one, and with two, maybe three consequences we can reason out. Homeowners serious about using the strategy have probably already done so. But anyone late to the party could be listing a house soon, leading to a wave of sellers on the market. Will this blunt or stall home price growth? Hold that thought.
What about the premium currently being built in to the share market? What does this have to do with super? Anyone trying to get ahead of inflows into super funds would want to buy now. It’s another case of “buy the rumour, sell the news.” In practical terms, that means institutions are probably loading up on the most widely held stocks in the Aussie market… right now. They want to be there before the public starts buying, at which point the institutions will become sellers.
By virtue of their going up, in addition to their liquidity and perceived safety, these blue chips are probably just the stocks super investors will buy with their newly liberated cash. Super investors will be buying and institutions will be selling. Who do you think is going to come out best on that trade?
Once the buying power of the one-off super money is exhausted, what will happen to the premium in share prices built up first by institutions and later by the public? Won’t the public get left holding the bag again while the institutions share a private chuckle and a bottle of Moet and Chandon?
Probably. But let’s give the public credit. It is not entirely gullible. There are $1 trillion in assets in Australian managed funds. The public knows that for now, that is good news for companies like AXA, which saw net retail inflows of $2.85 billion in last year. If you can beat the house, join it, would seem to be the name of this strategy.
But it’s a risky game to play, full stop. We know the money-shufflers make their take coming and going in the stock market. Buy-and-hold does not matter to them. For investors, of course it does. And is buying into a premium now, hoping it will get more expensive later the best idea?
We don’t know. It tests a man’s will and confidence to sit on the sidelines when everyone else gets effortlessly, thoughtlessly rich. There’s no crime against accidental wealth. But it usually doesn’t stick around long, anymore that an accidental good time that began with free bourbon.