This year’s Santa Rally could be a particularly cheerful season for investors in S&P/ASX 200 Index (ASX: XJO) shares.
There are predictions that there will be an $84 billion-plus spending spree leading up to Christmas and into early 2022!
This bullish prediction is made by high profile Bell Potter trader, Richard Coppleson. He added up all the dividends, cash takeover bids and off-market buybacks to get to that staggering cash pile.
ASX 200 shares get extra shopping cash for Santa Rally
ASX 200 shares tend to outperform from the end of the year – a period that has come to be known as the Santa Rally.
“One of the best times to be in the market has been from mid-October into 31 December. But this year it is supercharged and [the market] will end the year with a bang,” said Coppleson.
“The sheer amount of cash is mammoth – the largest I have ever seen – that will swamp the Australian market over the next 4 to 6 months.”
He reckons that the cash investors will receive from dividends, bids and buybacks will mostly be reinvested back into the market.
Dividends and M&A galore
Dividends alone make up the majority of the extra investment capital. Investors will receive $40.6 billion in half-year distributions from their ASX shares in September and October.
There are a number of other ASX companies that could get acquired for cash in the near-term. This includes the Australian Pharmaceutical Industries Ltd (ASX: API) share price after Wesfarmers Ltd (ASX: WES) agreed to pay circa $800 million for its equity.
The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price is another that looks likely to change hands. Our largest airport operator has a market cap of over $22 billion.
ASX 200 share buybacks to put extra cash in shareholders’ pockets
The third source of cash comes from off-market share buybacks. This is another popular way for ASX 200 shares to return excess capital to shareholders.
They do this by allowing shareholders to auction their shares back to the company, usually at a discount to the market price.
It could be a rewarding exercise for shareholders as they would typically receive franking credits. Depending on their individual tax circumstances, these credits could be more than enough to offset any loss from selling their shares at a discount.
What’s more, shareholders could get the extra benefit of claiming a capital loss even though they could be making a profit due to the franking credits.
Some ASX 200 shares that have or are currently in the process of undertaking an off-market share buyback include Commonwealth Bank of Australia (ASX: CBA), Viva Energy Group Ltd (ASX: VEA) and Wesfarmers.
Market valuations may look stretched and COVID-19 continues to weigh on the global economy. But it could be a mistake to turn bearish at this point.