Window dressing tipped to lift stocks as financial year ends
-Money Blog November 2009- Market Insider - Analyst Comments
Investment funds and other institutional investors are expected to drive up the
value of their portfolios ahead of the end of the financial year, in a trend
that could push the market to a positive close
"In years past, because we've had such strong markets, we've seen a lot of
selling of losing stocks to offset against gains,'' says Bell Direct's Julia
Lee. "But because it's been such a bad year, instead of people selling bad
performers, fund managers may be trying to boost how their performance looks
because we've seen a rally ... since March 9.''
Funds "will be trying to make their books a little bit better as they usually
do'', predicts Austock senior client adviser Michael Heffernan. "I think the
market will end on a positive note as they try to window-dress their final
result.''
While the term "window dressing'' is also applied to legitimate year-end stock
buying by fund managers, the Australian Securities Exchange defines it as
driving up prices on selected shares to inflate their value before a year-end
valuation.
For individuals invested through a fund, window dressing artificially inflated
'higher management fees for the investment manager'', the ASX said recently in
an announcement.
"It does happen,'' says a broker, who doesn't want to be named for the
sensitivity of the matter. "You can't prove it. And you can't really do
anything to prevent it because it's a free and open market,'' says the broker,
who doesn't want to be named for the sensitivity of the matter.
"If it's been a bad year and these's opportunity there, to pay a couple of
hundred grand and it lifts stock up 10 per cent and the make books look better
for their investors, then nothings going to stop (funds) from doing that.''
"It's easy enough to do,'' he says, whether the trades are legitimate or aimed
to make the portfolio appear more valuable than it is.
Industry insiders say window dressing doesn't necessary translate into big
rises on the final day.
A survey of trading patterns over the past eight financial years shows a marked
increase in trading volumes on the last day of the year in five of them.
If funds were required to lodge quarterly disclosures, investors in the funds
"would be able to see for themselves which fund managers were turning over a
stock at a particular time of the year more than other fund managers'', Gray
says.
"That would allow people to estimate how much trading a fund manager does,''
Gray says.
