We all know “sell in May and go away” but why do Australian investors mimic their Northern counterparts when they are headed into Winter, not Summer holidays?
Apart from the influence of large Northern hemisphere indexes on smaller Southern hemisphere markets, we should also consider that the financial year for Australians ends on 30 June. Institutions tend to window-dress their balance sheets before the year-end by selling off non-performers and building a strong cash holding for new acquisitions. Private investors are also motivated to realize tax losses before the year-end.
Bell Potter’s Coppo Report observes:
“I have looked at tax loss selling over the years & it actually begins earlier than most realise – around now. It usually goes for 4 weeks until the 3 week of June & then some stocks start to recover.”
Only 35% of ASX 200 stocks are lower but these tend to be the heavyweights, with Coppo pointing out they represent 56% of market capitalization. At an average annual loss of -15%, they offer plenty of motivation for tax loss selling.
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