Original source: The Financial Review | Chanticleer
Written by Tony Boyd, 22 June 2015
Weird movements in Australian share prices like those seen last Friday afternoon could become commonplace according to a leading fund manager who says “market manipulation” is bad for Australia’s image overseas.
John Abernethy, chief investment officer at Clime Asset Management, says the combination of fast-growing superannuation balances and a slow-growing economy will have significant implications for equity markets.
Abernethy was commenting on the weird movements in a range of small and large cap stocks on Friday afternoon just before the market close.
Here are some examples of strange last-minute trading in stocks last Friday: Brickworks shares traded in a narrow range all day and then fell 4 per cent in the last minute of trading; Cedar Woods Properties jumped 1.8 per cent and then fell 5.5 per cent in the last minutes of trading; Australian Industrial REIT jumped 7 per cent shortly before the close and then fell 2.5 per cent; and the Reject Shop jumped 3.7 per cent before falling 5.7 per cent in the last couple of minutes of trading.
“What we are seeing now is the early signs of what is going to become a bigger and bigger problem over the next 10 years,” Mr Abernethy said.
“The economy is not growing enough for the growth in the super system. Wealth will be destroyed if there is nowhere to invest it.
“Market manipulation really is becoming an issue.
“It needs to be addressed if Australia wants to maintain international confidence in the Australian equity market.”
Another fund manager and a dealer on a leading trading desk said the strange movements seen on the market Friday afternoon were typical of what happens when a fund manager mandates change.
They said that there are many mandates changing in Australia at the moment and that is having an impact on share prices as the funds transition from one fund manager to another or to in-house managers.
“A lot of mandates have changed in Melbourne and some of the transition managers just want to get out,” one dealer said. “It can really affect illiquid stocks.”
Mr Abernethy said the movements on Friday could have had a negative or positive impact on the superannuation balances of members in funds with daily unit pricing.
“Anyone who retired on Friday with money in managed funds with unit pricing is either extremely lucky and had a windfall gain or is suffering losses,” he said.
“The amount of funds that have to be invested in Australian equities is swamping the amount of available opportunities.
“These moves in stocks are just going to get worse as funds have to resort to derivatives trading for arbitrage, hedging and market manipulation to move indices to give a false impression of returns.”
“This goes right across the market from small caps to big caps and is related to what index is relevant for the underlying fund manager’s performance and bonuses.”
The Australian Securities and Investments Commission routinely investigates sudden movements in stock prices. It is particularly interested in movements in prices just before the close or at the end of a month, quarter or financial year.
Original Source: Australian Review