Market buoyed by rumour mill

The Australian sharemarket’s bull-run is now firmly into its fourth year and is providing the perfect conditions for those who can benefit from rumour and speculation.

Stocks are running hot, particularly at the small end of town.

Even mechanisms that used to stop a share price spike in its tracks, such as an Australian Securities Exchange price query or what brokers call a “speeding ticket”, are seemingly having little effect.

It used to be that when a company told the ASX it had no idea why its share price was running so far north, the company’s share price would subsequently fall as those piling in on the rumour realise it was just that – rumour, not fact.

But recently there have been examples where a company has told the ASX it knows nothing that could cause its shares to rise and the company’s share price continues to climb.

Perhaps it is because traders are getting savvier.

There are examples where a company has put out positive announcement just a few days after telling the ASX it had no idea why its share price was on the up.

On the flipside, there may not be any good news lurking around at all but the traders are continuing to play the game, piling in and keeping share prices up.

“There’s a lot of lost confidence in the speeding ticket process at the moment,” one stockbroker told WA Business News.

“Companies say nothing is going on but the market is so buoyant they keep going up.”

ASX head of corporate affairs Matthew Gibbs said the number of price queries the organisation was issuing had increased by about 10 per cent in the past 12 months.

“That’s a function of two things,” Mr Gibbs said.

“One is that there has been an overall increase in the number of companies, so you would expect there to be more queries. The second is that the market is so strong.”

“It does not necessarily mean that there has been any misbehaviour by the company. Sometimes a price query does pinpoint misbehaviour, but most of the time it (the share price rise) is simply a function of a strong market.”

One stockbroker said there were a lot more traders interested in making quick money than there was 12 months ago.

Another said traders were quickly pouring in or jumping out of stocks based on volumes not rumours, leaks or anything else untoward.

“There is a system operating at the moment where someone will take a look at the first two hours of trade and what ever stock has the biggest volume they will buy,” he said.

“They buy on volume; that is just insane trading. It’s getting pretty scary at the moment because many stocks have run a fair way ahead of their valuations.”

Another broker said there was a higher degree of “day-trading” with people “forgoing quality to trade on opportunity”.

“In the tech-boom plenty of people said the bubble was going to burst but you could have made a lot of money before it did, you just had to know to get out at the right time,” the stockbroker said.

There is also talk of placements being made to spruikers who are valued for their ability to talk the stock up through the judicious spread of market gossip.

Another broker said the stock market was “defying sense at the moment”, with rumours being fanned in internet chat rooms and more leaks coming from the companies themselves.

“There are a lot of new, young directors who don’t appreciate the significance of what they tell people,” the stockbroker told WA Business News.

Stockbrokers are quick to point out that the ASX regularly checks trading activity in various stocks.

But they say that as the numbers of speculative companies hitting the market increase, the ASX’s job has become much harder.

Some stockbrokers have questioned whether the organisation has the resources to stop those cashing in on the good times after spruiking stocks or starting rumours.

“It’s physically impossible,” said one broker.

The ASX has about 14 people dedicated to market surveillance, with four of those working for its insider trading unit.