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Australia grows up in share world

The world’s greatest shareholder nation!

This is a title for which we, in Australia, are vying with the US.

In 1991 approximately 9 per cent of us invested in the sharemarket.

Since 1995, when the plethora of new floats and privatisations commenced in Australia, our level of share ownership has resulted in 2.3 million Australians now owning shares.

Between 1988 and 1993 2,700 State-owned enterprises around the world worth US$270 billion were sold into private

ownership.

For those of you who scream that this is the domain of the rich and infamous, it certainly appears that, while in the main that is true, an increasing number of Australians with incomes between $35,000 and $50,000 own some shares.

There are obviously a number of reasons for this increase.

In an era when inflation is spiralling

downwards at a rapid rate, the one asset that is likely to perform strongly is the equity market.

This is because in a low inflation environment, corporations will produce a real return that is substantially above inflation.

Share market traders essentially value their investments on the basis of the expected returns. The improved performance of the corporation is then reflected in an improved share price.

Secondly, the baby boomers are coming to an age when mortgages are largely paid for, debts are minimal and the amount of money flowing into superannuation is astronomical.

Superannuation assets need to be invested to best advantage and, at present the sharemarket represents the best option.

This increased spurt of money causes the demand for stocks to increase and this forces the price up.

A third reason for the rise in sharemarket ownership has been the demutualisation of AMP, National Mutual, Colonial Mutual and other insurance companies.

The demutualisation process transferred huge reserves of profits that had been made by the insurance companies to the policyholders in the form of shares.

This has further boosted the levels of share ownership by ordinary Australians.

Because of this increased share ownership, new floats are treated with a great deal of interest.

Australians are far more informed than they have ever been about the nature of, and machinations in, the share market.

News programmes, radio talk shows, journals, magazines and newspapers such as this one are very much in demand for their educational and informational value.

The other phenomenon that has surfaced in recent years is the birth of the day trader.

These are the intrepid folks who open a position in a stock in the morning and close it in the evening with the object of hopefully taking a profit over the trade in any day.

I have a great deal of difficulty in seeing how these traders can achieve any arbitrage profits because of the transaction costs that would apply.

Additionally, the time constraints that we all work under these days makes it difficult for us to maintain contact with and knowledge of the market to make decisions that are appropriate to the volatility in the markets.

Nevertheless, it must be said that as a well-informed and educated public, we are more aware of the sharemarket as a recipient of our hard-earned dollars.

This, in itself, is a good sign for the future efficiency and growth in the Australian sharemarket.

• Economist Suresh Rajan is a director and proper authority holder with Smith Martis Cork and Rajan – financial planners.

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