Australian Share Traders Just Picking Up in Confidence Before Wave of Market Volatility Hit

Research into active Australian share traders

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Mar 20, 2011, 09:00 ET

SYDNEY, March 20, 2011 /PRNewswire/ -- The findings of the latest CMC Markets Share Trader Insights Survey have just been released, providing a window into share traders' behaviour in a time of market-moving global and local events. 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. CMC Markets has overlaid market expert opinion on its February findings to ascertain where Australians who engage in share trading are currently at.

For further information and to access the research charts, please visit www.cmcmarkets.com.au/STIS

Expectations of Australian share market performance

In February 2011, share traders expected the Australian share market to perform better over the next six months. Sixty percent of traders predicted positive growth. No doubt, fears and uncertainty around the evolving global market volatility from the crisis in Japan will have an impact on this positive sentiment reading.

"Optimism of traders is clearly influenced by the overall movements of the market, which is why we have seen an increase in the herd mentality in recent months. I think that the situation in Japan, although impossible to predict, should serve as a reminder to traders that trades should be based on their strategy and not their perception of what the rest of the market is doing," says David Land, Head of Analysis and Education at CMC Markets.

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%.

Mr. Land 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 Mr. Land.

Top 5 stock picks

A clear pattern continued with BHP (1), RIO (2), CBA (3) and ANZ (4) being the top four stock picks. Interestingly, NAB (5) replaced WBC as the fifth most popular stock pick.

Commenting on the movement towards Australian resource stocks, Mr. 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 when 25% 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.

AUD: where to from here?

In this survey, 41% of investors expressed a belief that the AUD will appreciate against the USD.

"The AUD 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 Mr. 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 Mr. Land.

About CMC Markets

The CMC Markets Group, a leading independent financial services provider, offers a range of investment products and investment tools including shares, options, listed managed investments, warrants, interest rate securities and Contracts for Difference (CFDs). Through our partnerships we can also provide access to managed funds and margin lending execution. In 2007, CMC Markets launched its broking service with the acquisition of Andrew West Stockbroking and CMC Markets Stockbroking is now one of the only non-bank aligned, online stockbrokers in Australia. CMC Markets' institutional partner Goldman Sachs owns a 10% stake in the company.

CMC Markets is a pioneer of CFD trading in Australia and a world leading CFD provider. With offices in London, Frankfurt, Dublin, Madrid, Vienna, Sydney, Tokyo, Toronto, Beijing, Auckland, and Singapore, CMC Markets represents clients in over 70 countries. The company was founded in 1989 and is regulated by ASIC in Australia. CMC Markets Stockbroking is a participant of the ASX Group.