AUSTRALIA - Stock Market - Economy
Authors
All information relates to 2008. To be updated to 2011.
The Australian Stock Exchange Limited (ASX) was formed in 1987 through the amalgamation of six independent stock exchanges that formerly operated in the state capital cities. Each of those exchanges had a history of share trading dating back to the 19th century.
ASX was originally a mutual organisation of stockbrokers, like its predecessor State stock exchanges. However, in 1996, its members decided to demutualise and become a listed company, which required legislation of the Australian parliament. The change of status took place on 13 October 1998, and the following day ASX shares were listed for trading on ASX's own market.
The Australian Stock Exchange Limited (ASX) was formed in 1987 through the amalgamation of six independent stock exchanges that formerly operated in the state capital cities. Each of those exchanges had a history of share trading dating back to the 19th century.
ASX was originally a mutual organisation of stockbrokers, like its predecessor State stock exchanges. However, in 1996, its members decided to demutualise and become a listed company, which required legislation of the Australian parliament. The change of status took place on 13 October 1998, and the following day ASX shares were listed for trading on ASX's own market.
ASX operates Australia’s primary national stock exchange for equities, derivatives and fixed interest securities.
According to the most recent Global Stock Market Review by Standard and Poor’s, Australia’s stock market is the ninth largest in the world in total market capitalisation terms and the second largest in the Asia–Pacific region, after Japan’s.
More than 2000 companies, with a total market capitalisation of $1.6 trillion, were listed on the Australian Stock Exchange in 2007. Australia has one of the highest rates of share ownership in the world; more than 50 per cent of the adult population owns shares in publicly listed companies.
Australia’s investment funds asset pool of around $US864 billion continues to be the largest in the Asia–Pacific region and the fourth largest in the world.
The next step is to compute the directional index DI by bringing the +DMI and -DMI to a percentage with respect to the true range. It's an expression of the average true range for both the up and the down trading intervals. This will yield two separate indicators once again the +DI and the -DI.
The DX is computed by taking the difference between these two indicators and dividing by the sum and then bringing them to a percentage by multiplying by 100, which will place the indicator somewhere between 1 and 50.
To smooth out some wild swings during volatile movements in the market Wilder then applies his accumulated averaging technique, which is an interesting calculation technique all on its own, to arrive at the ADX.
The ADX is displayed below the bar chart usually. It can be displayed separately or in conjunction with the DMI indicators.
How to use the indicators
Now we have a complete trading system at our disposal and it's very easy to use.
The first and most basic signal is to buy the market when the +DMI crosses above the -DMI and to sell the market when the -DMI crosses above the +DMI.
There is a caveat to the cross over signal known as the extreme point rule. Wilder suggested implementing this filter to avoid the problem of being "whip-sawed". It states that one should not instigate a long position until price has taken out the high posted on the day or bar that the +DMI crossed above the -DMI.
Conversely one should wait to establish a short position until the low of the bar that was made when the -DMI crossed above the +DMI is taken out.
The signal generated from the DMI cross, works great in a trending market and poorly in a sideways market. Wilder recommended only using the system when the market was trending. That then gave rise to the Average Directional Index (ADX) and the turning point concept. The ADX must be above both the +DMI and the -DMI, if it then turns, especially from a high value, it is indicating a similar retracement in price against the underlying trend. Remember the ADX is a trend indicator and doesn't reflect the direction of the trend, just whether the market is trending or not.
In the example below, the first vertical line on the chart marks the first cross, which has generated a sell signal. That sell signal was supported by the ADX, because it was above the other indicators and had turned to indicate a change in trend. This change in trend turned out to be a consolidation in the market as it moved into a non trend or sideways mode. The next signal was generated when the +DMI crossed above the -DMI issuing a buy signalled. The fact that the ADX was still above theses indicators in value, still above 20 and therefore trending, supported the buy signal, even after allowing for the extreme point rule, which needed to be employed.
The DMI indicator has maintained a long position and captured a large part of the resultant bull market. The ADX is also moving higher, indicating continuation of the current trend.
Conversely one should wait to establish a short position until the low of the bar that was made when the -DMI crossed above the +DMI is taken out.
The signal generated from the DMI cross, works great in a trending market and poorly in a sideways market. Wilder recommended only using the system when the market was trending. That then gave rise to the Average Directional Index (ADX) and the turning point concept. The ADX must be above both the +DMI and the -DMI, if it then turns, especially from a high value, it is indicating a similar retracement in price against the underlying trend. Remember the ADX is a trend indicator and doesn't reflect the direction of the trend, just whether the market is trending or not.
In the example below, the first vertical line on the chart marks the first cross, which has generated a sell signal. That sell signal was supported by the ADX, because it was above the other indicators and had turned to indicate a change in trend. This change in trend turned out to be a consolidation in the market as it moved into a non trend or sideways mode. The next signal was generated when the +DMI crossed above the -DMI issuing a buy signalled. The fact that the ADX was still above theses indicators in value, still above 20 and therefore trending, supported the buy signal, even after allowing for the extreme point rule, which needed to be employed.
The DMI indicator has maintained a long position and captured a large part of the resultant bull market. The ADX is also moving higher, indicating continuation of the current trend.
More than 2000 companies, with a total market capitalisation of $1.6 trillion, were listed on the Australian Stock Exchange in 2007. Australia has one of the highest rates of share ownership in the world; more than 50 per cent of the adult population owns shares in publicly listed companies.
Australia’s investment funds asset pool of around $US864 billion continues to be the largest in the Asia–Pacific region and the fourth largest in the world.
Returns given by various Australian Indices over the past 10 years have been tabulated below
S&P US Indices
| 12 Months | 3 Years | 5 Years | 10 Years |
| S&P 500 1 | -26.214 | -8.216 | -2.24 | -2.221 |
| S&P MidCap 400 2 | -28.021 | -7.533 | 0.364 | 4.612 |
| S&P SmallCap 600 3 | -25.314 | -9.56 | -0.899 | 4.733 |
| S&P 900 4 | -26.377 | -8.165 | -2.017 | -1.715 |
| S&P 1000 4 | -27.247 | -8.231 | -0.071 | 4.638 |
| S&P Composite 1500 4 | -26.338 | -8.222 | -1.971 | -1.514 |
| S&P 100 5 | -23.817 | -7.189 | -2.699 | -2.993 |
| S&P 500 Equal Weighted 7 | -23.556 | -8.343 | -0.968 | 2.202 |
Directional movement index (DMI)
- This is a trend following indicator developed by Welles Wilder, the author of the book "New Concepts in Technical Trading". In this text he explains, in detail, this particularly difficult to understand mathematical indicator, fortunately it's relatively easy to use.
The Average Directional Index (ADX) when coupled with the positive (+DMI) and the negative (-DMI) directional indicators, provide a complete and accurate trading system. It's not possible to go into the full details of how to arrive at the indicators in this limited space, but it is possible to have a discussion about the concept.
First we need to arrive at a directional movement indicator, + or - DM or no change. It is defined simply as the largest part of the current range outside the previous range. If it's higher then it's positive +DM, if it's lower, then it is negative or -DM. DM is 0 if the range is wholly within or the same as the previous range.
A rather complicated set of calculations is then embarked on, which goes to average the +DMI, -DMI and the true range. The actual result will be a number that will always lie between 0 and 100 and therefore is the absolute value of direction, up or down. The plus and minus refer to direction, movement up and movement down respectively.
The DMI indicators are displayed as two distinct lines, usually below the bar chart. In the example below the -DMI is the red line and the +DMI is the blue line.
Average Directional Index
The next step is to compute the directional index DI by bringing the +DMI and -DMI to a percentage with respect to the true range. It's an expression of the average true range for both the up and the down trading intervals. This will yield two separate indicators once again the +DI and the -DI.
The DX is computed by taking the difference between these two indicators and dividing by the sum and then bringing them to a percentage by multiplying by 100, which will place the indicator somewhere between 1 and 50.
To smooth out some wild swings during volatile movements in the market Wilder then applies his accumulated averaging technique, which is an interesting calculation technique all on its own, to arrive at the ADX.
The ADX is displayed below the bar chart usually. It can be displayed separately or in conjunction with the DMI indicators.
How to use the indicators
Now we have a complete trading system at our disposal and it's very easy to use.
The first and most basic signal is to buy the market when the +DMI crosses above the -DMI and to sell the market when the -DMI crosses above the +DMI.
There is a caveat to the cross over signal known as the extreme point rule. Wilder suggested implementing this filter to avoid the problem of being "whip-sawed". It states that one should not instigate a long position until price has taken out the high posted on the day or bar that the +DMI crossed above the -DMI.
Conversely one should wait to establish a short position until the low of the bar that was made when the -DMI crossed above the +DMI is taken out.
The signal generated from the DMI cross, works great in a trending market and poorly in a sideways market. Wilder recommended only using the system when the market was trending. That then gave rise to the Average Directional Index (ADX) and the turning point concept. The ADX must be above both the +DMI and the -DMI, if it then turns, especially from a high value, it is indicating a similar retracement in price against the underlying trend. Remember the ADX is a trend indicator and doesn't reflect the direction of the trend, just whether the market is trending or not.
In the example below, the first vertical line on the chart marks the first cross, which has generated a sell signal. That sell signal was supported by the ADX, because it was above the other indicators and had turned to indicate a change in trend. This change in trend turned out to be a consolidation in the market as it moved into a non trend or sideways mode. The next signal was generated when the +DMI crossed above the -DMI issuing a buy signalled. The fact that the ADX was still above theses indicators in value, still above 20 and therefore trending, supported the buy signal, even after allowing for the extreme point rule, which needed to be employed.
The DMI indicator has maintained a long position and captured a large part of the resultant bull market. The ADX is also moving higher, indicating continuation of the current trend.
Conversely one should wait to establish a short position until the low of the bar that was made when the -DMI crossed above the +DMI is taken out.
The signal generated from the DMI cross, works great in a trending market and poorly in a sideways market. Wilder recommended only using the system when the market was trending. That then gave rise to the Average Directional Index (ADX) and the turning point concept. The ADX must be above both the +DMI and the -DMI, if it then turns, especially from a high value, it is indicating a similar retracement in price against the underlying trend. Remember the ADX is a trend indicator and doesn't reflect the direction of the trend, just whether the market is trending or not.
In the example below, the first vertical line on the chart marks the first cross, which has generated a sell signal. That sell signal was supported by the ADX, because it was above the other indicators and had turned to indicate a change in trend. This change in trend turned out to be a consolidation in the market as it moved into a non trend or sideways mode. The next signal was generated when the +DMI crossed above the -DMI issuing a buy signalled. The fact that the ADX was still above theses indicators in value, still above 20 and therefore trending, supported the buy signal, even after allowing for the extreme point rule, which needed to be employed.
The DMI indicator has maintained a long position and captured a large part of the resultant bull market. The ADX is also moving higher, indicating continuation of the current trend.
Economy
Since 1991, Australia’s real economy has grown by an average of 3.3 per cent a year. Australia’s gross domestic product (GDP) in 2007 (in value terms) was around $1 trillion.
The goods and services tax (GST) is levied at 10 per cent and applies to almost all goods and services. There is no stamp duty on share transactions and the corporate tax rate is 30 per cent. The government also provides tax incentives of up to 175 per cent to encourage businesses to invest in research and development.
Australia’s exports of goods and services rose 16 per cent to reach their highest value on record of $215.8 billion in 2006–07—about 21 per cent of Australia’s GDP.
http://www.dfat.gov.au/facts/global_economy.html accessed on 26-11-2008
| Column1 | Column2 | Column3 | Column4 |
| Annual data | 2008(a) | Historical averages (%) | 2004-08 |
| Population (m) | 20.6 | Population growth | 0.9 |
| GDP (US$ bn; market exchange rate) | 991.2 | Real GDP growth | 3.1 |
| GDP (US$ bn; purchasing power parity) | 792.9 | Real domestic demand growth | 4.5 |
| GDP per head (US$; market exchange rate) | 48,070 | Inflation | 3.0 |
| GDP per head (US$; purchasing power parity) | 38,450 | Current-account balance (% of GDP) | -5.6 |
| Exchange rate (av) A$:US$ | 1.19 | FDI inflows (% of GDP) | 2. |
- The Labor Party has a large majority in the House of Representatives (the lower house of parliament) and a clear popular mandate to implement its agenda. The opposition Liberal-National coalition needs to take advantage politically of the deteriorating economic climate if it is to mount a strong challenge to Labor before the next federal election, which will probably take place towards the end of 2010.
- The prime minister, Kevin Rudd, shares a number of policy views with the new US president, Barack Obama, and this should help relations between the two countries. Mr Rudd is also well placed to foster trade ties with China, having spent a number of years as a diplomat in the Chinese capital, Beijing. However, he is unlikely to embrace wholeheartedly China's growing influence in Asia.
- Fiscal stimulus packages and declining tax revenue will lead to a significant deterioration in the government's finances, with the budget deficit forecast to average 2.1% of GDP in 2009-13. Mr Rudd plans to limit growth in spending to 2% a year once annual GDP growth reaches 3%, but this rate of economic expansion is unlikely to be reached in the forecast period.
- Real GDP is forecast to contract by 1.6% in 2009 as the global recession reaches its nadir. Economic growth will recover slowly to average 1.6% a year in 2010-13, down from an average of 3.1% in 2004-08. Private consumption growth is likely to be weak relative to the rates recorded in the historical period, as households try to reduce their high levels of debt.
- Inflationary pressures will dissipate as domestic demand falls in 2009. Inflation is expected to slip below the 2-3% range targeted by the Reserve Bank of Australia (the central bank), but should move back into that range in 2010-13. The Australian dollar is forecast to weaken against the US dollar in 2009-10, owing to falling domestic interest rates and weak world commodity prices.
- The main downside risks to the forecast for Australian GDP growth are a larger than expected fall in international commodity prices, a steep drop in house prices, further turmoil in global financial markets and a deeper global recession than is currently expected.
- Merchandise exports will be hit hard by the global economic recession in 2009, and Australia's trade deficit will widen as exports contract more sharply than imports this year. The trade account is expected to remain in deficit during the forecast period. Large interest payments on foreign debt will ensure that the current-account deficit remains large throughout the forecast period.
Download the latest economic fact sheet of Australia contains 2011 subject to revision data and 2012 estimates of IMF
Key projected figures from 2008-2013:
| Key indicators | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 |
| Real GDP growth (%) | 2.1 | -1.6 | 0.3 | 1.5 | 2.1 | 2.5 |
| Consumer price inflation (av; %) | 4.4 | 1.2 | 1.9 | 2.4 | 2.5 | 2.5 |
| Budget balance (% of GDP) | 1.8 | -3.3 | -3.2 | -1.8 | -1.1 | -0.9 |
| Current-account balance (% of GDP) | -4.2 | -3.5 | -3.7 | -4.2 | -4.8 | -5.3 |
| Deposit rate (av; %) | 5.2 | 3.4 | 3.3 | 3.5 | 3.8 | 4.1 |
| Exchange rate A$:US$ (av) | 1.19 | 1.55 | 1.58 | 1.57 | 1.52 | 1.43 |
| Exchange rate A$:¥100 (av) | 1.15 | 1.65 | 1.57 | 1.57 | 1.48 | 1.43 |
[Source:http://www.economist.com/countries/Australia/profile.cfm?folder=Profile%2DEconomic%20Data]
Business Cycles:
Like any other national economy Australian economy also shows business cycles. Factors that influence Australian Business cycle are listed below:
- World Output and Interest rates
- Terms of Trade
- Rain and Farm Output
- Wage shock
- Productivity growth
- Labour Supply shock
The first 3 factors are most important factors in Australian business cycle. When world Interest rates increase Australian interest rates also increase since its economy is financially integrated with the rest of the world thus making loans for investments costlier and bringing down the growth rate
Secondly Australian economy is a commodity based economy.It devives its strength from commodity exports(61% exports are commodities). Hence Australia's business cycle is very much dependent on the movement of commodity prices in the world market
In the same vein, Rains will have an impact on australian commodity business.
Economic recession has battered Australian economy as shown in the decline in GDP growth rate figures in 2009.
Growth Cycles
|
Classical Cycles
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Dates of peaks and troughs by month and year
|
Duration in months
|
Dates of peaks and troughs by month and year
|
Duration in months
| ||||||||||
Peak
|
Trough
|
Contraction
|
Expansion
|
Cycle
|
Peak
|
Trough
|
Contraction
|
Expansion
|
Cycle
| ||||
peak
|
trough
|
peak to
|
trough to
|
peak
|
trough
|
peak to
|
trough to
| ||||||
to
|
to
|
peak
|
trough
|
to
|
to
|
peak
|
trough
| ||||||
trough
|
peak
|
trough
|
peak
| ||||||||||
-1
|
-2
|
-3
|
-4
|
-5
|
-6
|
-7
|
-8
|
-9
|
-10
|
-11
|
-12
| ||
Aug-60
|
Jun-61
|
10
|
46
|
56
|
Sep-60
|
Nov-61
|
15
|
30
|
57
|
42
| |||
Apr-65
|
Jan-68
|
33
|
36
|
69
|
79
| ||||||||
Jan-71
|
Jan-72
|
12
|
25
|
38
|
48
| ||||||||
Feb-74
|
Oct-75
|
20
|
10
|
30
|
45
|
Jul-75
|
Oct-75
|
15
|
154
|
166
|
169
| ||
Aug-76
|
Feb-78
|
18
|
43
|
61
|
28
|
May-76
|
Nov-77
|
18
|
7
|
22
|
25
| ||
Sep-81
|
Dec-82
|
15
|
35
|
50
|
58
|
Nov-81
|
May-83
|
18
|
48
|
66
|
66
| ||
Nov-85
|
Nov-86
|
12
|
37
|
49
|
47
| ||||||||
Dec-89
|
Dec-92
|
36
|
32
|
68
|
33
|
Feb-90
|
Oct-91
|
20
|
81
|
99
|
101
| ||
Aug-95
|
Feb-97
|
18
|
40
|
58
|
50
| ||||||||
6/00
|
02-Jan
|
8
|
39
|
47
|
48
| ||||||||
05-Apr
|
02-Jun
|
21
|
11
|
32
|
60
| ||||||||
01-Jul
|
2/09
|
25
|
36
| ||||||||||
Averages(a)
|
19
|
32
|
51
|
52
|
18
|
60
|
78
|
78
| |||||
Standard deviations(a)
|
9
|
12
|
13
|
15
|
4
|
52
|
50
|
51
| |||||
Notes:
| |||||||||||||
(a) The average durations and standard deviations are rounded to full months.
| |||||||||||||
(b) Preliminary.
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We can see that Australian economy has followed a cycle of roughly 50 months peak to peak.One can also see that it takes lesser time to go from peak to trough(19 months) than from trough to peak(32 months).
Monetary Policy
Reserve Bank of Australia comes out with 4 statements of monetary policy annually
The latest Policy document has following provisions:
- The Reserve Bank Board lowered the target for the overnight cash rate by a further 25 basis points in April, to 3 per cent. This brought the cumulative reduction in the cash rate to 425 basis points since September 2008. Money market yields imply there is an expectation of a further policy easing in the next six months, with the cash rate expected to reach a low of 2½–23/4 per cent
- Government bond yields have increased from the historical lows reached at the start of the year . The 10-year yield is around 4.9 per cent, with the spread between US and Australian yields increasing by 20 basis points since the last Statement to be around 165 basis points.
- Moody’s commented that even in a severe downturn they expect the major banks to remain comfortably within the Aa rating band. Consequently, the major banks are likely to remain among the highest-rated banks in the world.
Overall the latest Policy document points towards lower interest rates for Housing and Industrial Loans.
It also shows an Improvement in the corporate bond yield indicating that interest rates are set to fall further thus increasing economic activity.
[Soruce: Policy statement of May 2009 by Reserve Bank of Australia]
Comments
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Nifty Tips - 21 Sep 2011
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Nifty Tips - 21 Sep 2011
The post contains information of 2008. To be updated to 2011 information.
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