Yes, that's right, the Australian stock market will be $2 billion smaller this year, the first time in eight years, thanks to a number of factors.
And that's despite soaring market caps of three of the big four banks, AMP Limited (ASX: AMP) and a small rise in BHP Billiton Limited's (ASX: BHP) market value.
According to broker Credit Suisse, mergers and acquisitions such as the takeovers of David Jones and Goodman Fielder will drain $22 billion from the market this year. Add in share buybacks by the likes of CSL Limited (ASX: CSL), delisted stocks such as 21 Century Fox and a host of small resource explorers and the market is heading backwards.
A host of IPOs can't make up the short fall either, although that only accounts for around $7.7 billion so far this year, with Genworth Mortgage Insurance Australia (ASX: GMA) the largest float of $583 million worth of shares valuing the company at just under $2 billion.
It's good news according say Credit Suisse analysts, who are predicting the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) to hit 6,000 by the end of the year, as demand outweighs supply.
But there may be a dark side.
$1.6 trillion in Australia's superannuation system is looking for a home, and it can't all be in invested in the stock market, which is worth an estimated $1.5 trillion. Deloitte estimates that super funds will hit $3 trillion by 2020, suggesting bubbles could appear in Australia's stockmarket, as superannuation fund managers try to invest their funds.
That is unless investors seek out different asset classes such as foreign equities as well as domestic and international fixed income and other assets. With the Australian dollar rising above US 94 cents today, now could be the perfect time to invest some of that money offshore, especially with the Reserve Bank again stating that the Australian dollar was overvalued, and 'not by a few cents'. If you want a brilliant ASX idea, keep on reading…
