Investor sentiment bounces back

Despite the global economic downturn, positive investor sentiment is starting to return, which is good news for Australia, says Darren Moglia.

This year has certainly been an interesting year for investors. The Australian economy has recovered following the global financial crisis (GFC), but growth has fallen short of economists’ forecasts, with the economy expanding by 2.7 per cent in the 12 months to September.

Figures released on 1 December, 2010, by the Australian Bureau of Statistics (ABS) show growth during the third quarter came in at just 0.2 per cent compared to 1.1 per cent in the June quarter.

Looking more closely at activity in the Australian share market, volatility during the past 12 months has continued, as well as investor caution about debt in Europe and concerns about the speed of economic growth in China.

Yet despite this continuing market uncertainty, it seems online traders have been undeterred. In fact, new investors have continued to open online trading accounts during the year.

According to the Investment Trends’ 2010 First Half Online Broking Report, there were 650,000 active online share traders in Australia in May 2010, an 8 per cent increase on the year before, with 55,000 new traders entering the market between June 2009 and May 2010.

As we can see, online trading is a growing market.

Regardless of whether an investor chooses to work with a financial adviser or is self-directed, investors are seeking access to information and tools that help them stay informed and confidently make investment decisions.

Buying versus selling

One notable trend in 2010 is that Macquarie Edge traders have been buying more than they have been selling this year, suggesting an increase in confidence in the equities markets as investors move their investments from other asset classes back into equities.

In the past year, 60 per cent of Macquarie Edge’s trading volume has been purchases of shares, compared to 40 per cent of our volume coming from sell transactions.

High-quality research

We are consistently told by clients that they are looking for exclusive research that gives them insights into current market opportunities.

Before investing, individuals are seeking company information from analysts and strategists, such as return patterns, profits and earnings and historical performance, to provide them with the insights they need to make smart investments.

Given the current volatility of the market, premium research is more valuable than ever in helping self-directed investors make informed choices.

For some investors, the quality and breadth of available research is the single most important decision in selecting an online trading platform as this will help them to better understand the factors influencing share price performance and decide how they would like to build their investment portfolio.

Useful tools

With an increasing number of new online traders opening accounts during 2010, what we have experienced at Macquarie Edge is a growing demand for more educational tools and an aggregation of information sources to help new self-directed investors trade with more confidence.

Tools such as company information, consensus estimates and charting are considered highly valuable by investors when making investment decisions.

Being able to utilise interactive tools to analyse trends and customise watchlists is extremely important, as is the ability to access expert analyst commentary and company announcements.

What we are also regularly hearing from online traders are requests for more education. Research conducted when Macquarie Edge launched in 2009 revealed that one in three Australians thought online trading was like speaking another language.

Providing educational content, such as video tutorials, is key to helping our clients make the best use of the tools and information available to them.

According to the Investment Trends’ 2010 First Half Online Broking Report, nearly one in four (24 per cent) investors said more education materials would increase their satisfaction with their online broker, while 36 per cent revealed a similar interest in more trading tips.

Whether investors are using fundamental analysis, technical analysis or a combination of both to research and forecast the future growth trends of stocks, the global financial crisis has made them more engaged with their investment decisions, and the use of high quality information tools play an important role in this decision-making process.

As engagement and confidence grow, this bodes well for the future of the online trading market in Australia and financial markets generally.

Darren Moglia is associate director at Macquarie Edge.