CMC survey finds confidence lift before wave of market volatility

Tuesday 22nd March 2011

CMC Markets has released its latest Share Trader Insights Survey, offering a window into Australian share traders’ behaviour in a time of market-moving global and local events.

Confidence levels

The survey found that share traders' intentions for the coming months are to be much more proactive than they were six months ago. In July last year, 33% of traders stated that their intention was to 'do nothing and wait and see what happens to their investments", but in February 2011, this figure had decreased to just 18%.

David Land, head of analysis and education at CMC Markets, emphasises that traders should not base their trading decisions on where they think market sentiment is headed.

"From previous surveys, it has become apparent that the further the market runs in either positive or negative territory then the more positive or negative sentiment becomes. However, this does little for traders' ability to effectively time their entry and exit into and from their trades. The underlying lesson must be that traders need to have a concrete plan in place and not rely purely on their perception of market sentiment," says Land.

Top 5 stock picks

A clear pattern continued with BHP Billiton (1), RIO Tinto (2), Commonwealth Bank of Australia (3) and ANZ (4) being the top four stock picks. Interestingly, National Australia Bank (5) replaced Westpac Banking Corp. as the fifth most popular stock pick.

Commenting on the movement towards Australian resource stocks, Land says, "While the view of the resources boom remains positive, I think we will see the market focusing heavily on the big-name resources companies. As to the banks, I think that these complete the list of 'household names' that tend to attract investors and traders on a consistent basis."

Preferred sectors

More traders believe that materials will be the best performer over the coming months (32%), an increase from six months ago when25% of investors nominated materials as their number one sector pick. The banking sector has seen a slight drop in confidence -at 16% in February from 22% in July 2010.

Australian dolllar: where to from here?

In this survey, 41% of investors expressed a belief that the Australian dollar will appreciate against the US dollar.

"The Australian dollar has been so strong based on the strength of the commodity markets and Australia's high interest rate differential relative to the rest of the world. At the same time, the currency tends to be impacted very quickly as part of the broader 'risk-off' trade that occurs when overall confidence levels are damaged," said Land.

Preferred investment vehicles

Focusing on coming months, traders stated that Australian equities will continue to be the most popular asset choice, though it had fallen in popularity from 80% in July 2010 to 73% in February. Previous less popular assets such as corporate bonds and structured products had increased over the same period.

"We had been seeing an improving economic situation led by improved results coming out of the US, which has proved to be a strong driver of sentiment for the overall market. This has now been blunted by the tragic events that we have seen coming out of Japan. What always needs to be considered is that markets are trying to price in future events, and the threefold disaster in Japan makes this much more difficult. Once the nuclear crisis in Japan has been resolved, the market can begin pricing in its future implications combined with the rebuilding effort," said Land.

The field work examining the preferences and outlook of over 500 active Australian equity traders was conducted in February 2011, just prior to the recent tumultuous market movements following events in Japan.

Comments from our readers

No comments yet