Why global shorters are trashing Australian shares

vivicoly

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Last night's big fall on global sharemarkets and the further decline in oil prices means that international hedge funds will achieved a killing on the Australian sharemarket.
2016 has opened with a massive volley of international shorting of Australian shares and the currency because we are seen as a China proxy.
The world believes that the weakness in commodity prices and other trends are in part a reflection of considerable difficulties in China as its traditional manufacturing businesses slow and its services sector is unable to fill the gap.
But it is dangerous to short the Chinese sharemarket because at any time the government might come in and instruct institutions to buy.
It's a lot safer to short the Australian market and those institutions which hold our shares on behalf of their super members are only too happy to lend that stock to the shorters, for which they get a fee, even though it decimates the asset value of their members.
In addition, the shorting of the Australian sharemarket in 2016 is much more than simply a China proxy.
Australia has been lumped into a series of economies, led by Canada and Brazil, which are in the front line of the big iron ore and oil price falls.
The actual Australian economy has been somewhat insulated from the fall in iron ore and oil and gas prices because of massive Chinese investment in Australian housing, higher house prices, a strong tourism sector, led by China, and a rising agricultural sector.
But the overseas hedge funds do not take this into account and indeed are very nervous about the Australian housing market. Accordingly they have been particularly severe in shorting our banks and miners.
What would have derailed the shorters strategy would have been a strong Wall Street and a recovery in the oil market. Instead they are both in free fall.
Last night's fall in the oil market was accelerated because oil traders fear that the rising tensions between Iran and Saudi will actually increase production and at the same time US stocks of oil are rising because US producers that have borrowed vast funds are desperate to survive.
Part of the reason Wall Street is falling is because the market fears that the massive losses on loans to the energy sector have not yet been fully revealed. But that's coming.
In addition, former Federal Reserve Board member Richard Fisher told global markets this week that the Fed had frontloaded the US sharemarket with its massive stimulation in 2008 and 2009.
Therefore the US sharemarket could be in the doldrums for an extended period because earnings of US companies are not matching the inflated share prices caused by the Fed.
The possible good news for the Australian sharemarket is that during the next month the international shorters may need to cover their short positions, which will stabilise our market and might even see a rise if that short covering coincides with better trading on international markets.
But the bottom line for Australia is that we are seen by the hedge funds as a way to make money out of China's problems and the oil crisis. That means we will continue to be one of the more volatile markets in the world.
And that volatility will go on as long as our big superannuation funds continue to trash the asset value of their members' holdings by lending scrip that they own on their behalf.
If Australia introduces proper disclosure laws, the super funds will have to reveal that they are acting against the interest of their members. This will reduce volatility in the sharemarket.

Raymondukelee

key word:

If Australia introduces proper disclosure laws,