tag:theconversation.com,2011:/us/topics/australian-stock-exchange-47450/articlesAustralian stock exchange – The Conversation2021-12-13T19:08:08Ztag:theconversation.com,2011:article/1726832021-12-13T19:08:08Z2021-12-13T19:08:08ZWhy ‘buy now, pay later’ stocks fell in 2021, and what’s in store<p>Buy now, pay later (BNPL) companies were among the stock market darlings of 2020 – and nowhere more than in Australia, the birthplace of pioneering companies Afterpay and Zip Co. There are <a href="https://stockhead.com.au/primers/asx-bnpl-stocks-guide-heres-everything-you-need-to-know-2/">15 BNPL companies</a> listed on the Australian Securities Exchange (ASX), more than any other exchange in the world. </p>
<p>But if you took a punt and bought shares in any of them over 2021, there’s a good chance you’ve lost money. </p>
<p>The state of the sector isn’t as bad, however, as suggested by news reports claiming stocks have plunged an average of 80% in 2021. Those reports reflect calculations from peaks, mostly in February, that were part of a wider tech-stock bubble and were not sustainable.</p>
<p>A more realistic picture comes from comparing values from before that frenzy. </p>
<p>In the 12 months to November 30 2021, the 15 ASX-listed BNPL companies lost an average about 36% of their share value.</p>
<p>The best performers were <a href="https://www2.asx.com.au/markets/company/ffg">Fatfish Group Ltd</a> and <a href="https://www2.asx.com.au/markets/company/nov">Novatti Group</a>, followed by Afterpay, whose share price was up about 15% from November 30 2020. (Afterpay is now Australia’s 15th most valuable stock, with a market capitalisation of <a href="https://www.marketindex.com.au/asx100">about A$32 billion</a>.) </p>
<p>The worst performers were Splitit and Laybuy Holdings, down almost 80%.</p>
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Read more:
<a href="https://theconversation.com/why-jack-dorseys-square-paid-a-record-39-billion-for-afterpay-165528">Why Jack Dorsey's Square paid a record $39 billion for Afterpay</a>
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<p>These numbers are less headline-grabbing than those reports of the whole sector falling 80%, but they still significant. They reflect some hard truths about the BNPL market.</p>
<p>Demand for these services isn’t growing as strongly as expected. Competition is stiff. Profitability is the exception. And greater regulation looms, with <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-releases/18-357mr-asic-puts-spotlight-on-the-rapidly-growing-buy-now-pay-later-industry/">growing concerns</a> about the buy now, pay later model encouraging customers – especially younger people – to get into debt. </p>
<h2>A new line of credit</h2>
<p>Credit services have been around for decades. Afterpay and its rivals revolutionised the market by developing digital technology to make it very easy to sign up (automating credit checks to make approval almost instantaneous), and devising a revenue model built on charging merchants a transaction surcharge and customers late fees. </p>
<p>By not charging interest payments, BNPL companies are not subject to the same regulation under the <a href="http://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/nccpa2009377/sch1.html">National Credit Code</a> as credit providers such as Visa or American Express. </p>
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Read more:
<a href="https://theconversation.com/whats-the-difference-between-credit-and-debt-how-afterpay-and-other-bnpl-providers-skirt-consumer-laws-113464">What's the difference between credit and debt? How Afterpay and other 'BNPL' providers skirt consumer laws</a>
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<p>The Australian Securities and Investments Commission, which regulates financial services, has expressed concern about BNPL services being more likely to create “<a href="https://asic.gov.au/about-asic/news-centre/news-items/asic-tips-for-making-the-most-of-buy-now-pay-later/">unhealthy spending behaviours</a>”. Which is bad for consumers, but potentially good for profits. </p>
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<img alt="Afterpay, which listed on the Australian Securities Exchange in 2017, is now Australia's 15th most valuable public company by capitalisation." src="https://images.theconversation.com/files/436579/original/file-20211209-138695-1jeshx2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/436579/original/file-20211209-138695-1jeshx2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/436579/original/file-20211209-138695-1jeshx2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/436579/original/file-20211209-138695-1jeshx2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/436579/original/file-20211209-138695-1jeshx2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/436579/original/file-20211209-138695-1jeshx2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/436579/original/file-20211209-138695-1jeshx2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Afterpay, which listed on the Australian Securities Exchange in 2017, is now Australia’s 15th most valuable public company by capitalisation.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<h2>Low profitability</h2>
<p>Yet profitability in the sector has been surprisingly rare, despite stellar growth in BNPL user numbers and transaction values. </p>
<p>In Australia, the number of BNPL transactions increased by 90% between the 2017-18 and 2018-19 financial years, and by 43% between 2018-19 and 2019-20, <a href="https://asic.gov.au/about-asic/news-centre/news-items/asic-tips-for-making-the-most-of-buy-now-pay-later/">according to ASIC</a>.</p>
<p>But in the 2020-21 financial year, just two ASX-listed BNPL companies – <a href="https://www2.asx.com.au/markets/company/hum">Humm Group</a> and <a href="https://www2.asx.com.au/markets/company/ci1">Credit Intelligence</a> – made a profit. </p>
<p>Afterpay’s revenue grew 78% to $924.7 million but it made a loss of $159.4 million (compared with $22.9 million the year before). Zip Co <a href="https://zip.co/investors/reports">more than doubled sales revenue</a> but reported a <a href="https://www.home.saxo/en-au/content/articles/saxo-stories/10-most-popular-stocks-in-australia-in-august-02092021">$653 million</a> loss, compared with $19.94 million the previous financial year.</p>
<p>Contributing to this lack of profitability is not just competition between the BNPL companies but also from financial giants muscling into the market. For example, Commonwealth Bank launched its StepPay offering <a href="https://www.commbank.com.au/articles/newsroom/2021/03/commbank-unveils-bnpl-offering.html">in March</a>, while PayPal announced its <a href="https://newsroom.au.paypal-corp.com/PayPal_launches_Australias_only_no-fee_buy_now_pay_later_offering_for_consumers,_PayPal_Pay_in_4">Pay in 4</a> service in July. </p>
<h2>Market mania</h2>
<p>Despite the lack of profit, BNPL stocks benefited from the global surge in trading in tech stocks that followed market lows of April 2020. This reached fever pitch in February 2021 amid the Gamestop frenzy, when retail investors drove the price of the US-based video games retailer up 1,500%.</p>
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Read more:
<a href="https://theconversation.com/gamestop-how-redditors-played-hedge-funds-for-billions-and-what-might-come-next-154076">GameStop: how Redditors played hedge funds for billions (and what might come next)</a>
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<p>Among the (short-term) beneficiaries of this “irrational exuberance” were <a href="https://www2.asx.com.au/markets/company/iou">IOUpay</a>. It listed on the ASX in October 2000 and its share price over the past decade has traded below $0.20. In February it rocketed to $0.85 – a 425% gain. Now it’s back down below $0.20. </p>
<p>Another BNPL company, <a href="https://www2.asx.com.au/markets/company/ffg">Fatfish</a>, went from $0.03 to $0.43 – a 1,400% gain. It is now back to about $0.05. </p>
<h2>Regulatory pressures</h2>
<p>What goes up must come down. </p>
<p><a href="https://www.jstor.org/stable/25094440">Finance studies</a> show investor attention may temporarily pump up stock values, but prices will revert to fundamental levels in the longer term. This looks like the case with BNPL stocks.</p>
<p>Sensible investors should also be factoring in the potential for greater regulation of the market. Afterpay’s move into pubs – “beer now, pay later” – has again focused attention on <a href="https://www.abc.net.au/triplej/programs/hack/afterpay-at-the-pub-beer-now-pay-later/13627174">concerns</a> previously flagged by the <a href="https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-672-buy-now-pay-later-an-industry-update/">Australian Securities and Investments Commission</a> and the <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Creditfinancialservices">2018 Senate committee inquiry</a> into credit and financial services targeted at Australians at risk of financial hardship.</p>
<p>In October, a Reserve Bank of Australia report <a href="https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/conclusions-paper-202110/pdf/review-of-retail-payments-regulation-conclusions-paper-202110.pdf">concluded</a> it would be in the public interest to remove BNPL provider rules that prevent merchants from charging customers for the surcharge paid by the merchants. </p>
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Read more:
<a href="https://theconversation.com/how-to-know-if-your-online-shopping-habit-is-a-problem-and-what-to-do-if-it-is-143969">How to know if your online shopping habit is a problem — and what to do if it is</a>
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<p>Currently the cost of this surcharge is effectively spread among all customers. The Reserve Bank’s <a href="https://www.rba.gov.au/publications/bulletin/2021/mar/developments-in-the-buy-now-pay-later-market.html">research suggests</a> 60% of BNPL users would be put off if they had to explicitly pay this charge. While the central bank made no specific proposal, the federal government may choose to act on this in the future. </p>
<p>But it’s not all grim news for these companies. As in any market, some will succeed, others won’t. It depends on how they respond with new products, such as small business loans, partnership with banks, virtual BNPL cards that can be used anywhere, and rewards programs.</p><img src="https://counter.theconversation.com/content/172683/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>This story is part of a series on financial and economic literacy funded by Ecstra Foundation.</span></em></p>Buy now, pay later is a booming business. But be warned before you invest in it – or use it as a customer.Angel Zhong, Associate Professor of Finance, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1429852020-07-28T20:00:01Z2020-07-28T20:00:01ZBlue-chip, volatile, high-risk: retail investors are buying while professionals are selling<p>Stocks have held up relatively well during the COVID-19 pandemic. Following a steep decline in March, for example, the value of the Australian Stock has rebounded to be just 16% down on its February peak.</p>
<p>It’s a situation that appears to be exciting retail investors – regular people like you and I who buy shares directly. But this enthusiasm may be misplaced given the considerable uncertainty about the outlook for the economy.</p>
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Read more:
<a href="https://theconversation.com/why-stocks-are-soaring-even-as-coronavirus-cases-surge-at-least-20-million-remain-unemployed-and-the-us-sinks-into-recession-140395">Why stocks are soaring even as coronavirus cases surge, at least 20 million remain unemployed and the US sinks into recession</a>
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<p>We’ve analysed the trading in S&P/ASX 300 stocks from January to May 2020 to get a better understanding of what retail investors are doing.</p>
<p>Between March 23 (when the stock market started rising) and May 2, retail investors were net buyers of A$3.57 billion. At the same time the “professional” institutional investors – including super funds – were net sellers of $3.27 billion.</p>
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<p><strong>Cumulative net buying (A$ billion)</strong></p>
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<a href="https://images.theconversation.com/files/349826/original/file-20200728-31-1i4gpl5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/349826/original/file-20200728-31-1i4gpl5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/349826/original/file-20200728-31-1i4gpl5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=301&fit=crop&dpr=1 600w, https://images.theconversation.com/files/349826/original/file-20200728-31-1i4gpl5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=301&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/349826/original/file-20200728-31-1i4gpl5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=301&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/349826/original/file-20200728-31-1i4gpl5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=378&fit=crop&dpr=1 754w, https://images.theconversation.com/files/349826/original/file-20200728-31-1i4gpl5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=378&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/349826/original/file-20200728-31-1i4gpl5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=378&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">S&P/ASX 300, January to mid-May 2020.</span>
<span class="attribution"><span class="source">Author's calculations</span></span>
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<p>Notably, our results show retail investors weren’t just buying relatively safe “blue chip” stocks but also high-risk stocks. </p>
<h2>Retail investors rush in</h2>
<p>We decided to drill into the trading data after reports of booming retail investor activity. For example, an Australian Securities and Investments Commission <a href="https://download.asic.gov.au/media/5584799/retail-investor-trading-during-covid-19-volatility-published-6-may-2020.pdf">analysis of trading</a> between February 24 and April 3 found daily trading by retail brokers was double that of the preceding six months (A$3.3 billion compared with A$1.6 billion), and the rate of new trading accounts being opened increased 3.4 times.</p>
<p>Our <a href="https://sites.google.com/view/carole-comerton-forde/opinion-and-policy?authuser">analysis</a> shows that from the start of the year to March 3 retail investors were net sellers, offloading about A$1.64 billion in stock. Between March 3 and May 8 they became net buyers of stock, accumulating A$6.29 billion in stock. </p>
<p>In contrast, institutional investors were net buyers through to March 3 (buying about A$3.73 billion of stock) but then net sellers, shedding A$7.3 billion worth of equities by May 8.</p>
<p>Daily average trading activity (both buying and selling) by retail investors between March and May was double the average for 2019 (of A$1.12 billion, compared with $A590 million). The daily average trading by institutional investors was 30% higher (A$12.26 billion a day, compared with A$8.67 billion over 2019). </p>
<h2>What retail investors are buying</h2>
<p>We examined stock buying based on four characteristics: </p>
<ul>
<li><p>market capitalisation - the market valuation of a company based on its stock price and number of shares</p></li>
<li><p>the volatility of a stock price (how much it moves up or down) compared with the market average</p></li>
<li><p>level of debt, known as “leverage”. Companies with higher debt tend to be riskier investments in uncertain economic conditions </p></li>
<li><p>recent price changes – whether stock prices were rising or falling before our focus period.</p></li>
</ul>
<p>Our analysis shows retail investors were net buyers not only of large-cap companies such as <a href="https://www.asx.com.au/asx/share-price-research/company/BHP">BHP</a> and <a href="https://www.asx.com.au/asx/share-price-research/company/CBA">Commonwealth Bank</a> but highly volatile stocks such as <a href="https://www.asx.com.au/asx/share-price-research/company/AMP">AMP</a> and <a href="https://www.asx.com.au/asx/share-price-research/company/WEB">Webjet</a>, highly leveraged stocks such as <a href="https://www.asx.com.au/asx/share-price-research/company/DMP">Domino’s Pizza</a> and <a href="https://www.asx.com.au/asx/share-price-research/company/SEK">SEEK</a>, and stocks whose prices were falling prior to the lockdown, such as <a href="https://www.asx.com.au/asx/share-price-research/company/MYR">Myer</a> and <a href="https://www.asx.com.au/asx/share-price-research/company/FLT">Flight Centre</a>. </p>
<p>In contrast, institutional investors were net sellers of all these stocks. </p>
<p>These trends were broadly consistent across industry sectors. The one exception was software and services, where institutions were net buyers through the lockdown and retail investors were net sellers. </p>
<h2>Risky motivations</h2>
<p>Why has the COVID-19 crisis produced such novel behaviour? We don’t know for sure, but can speculate about a few possibilities. </p>
<p>It may be due to people having fewer spending opportunities and channelling their spare cash into the market in the hope of a speedy rebound and quick returns.</p>
<p>It may be due people looking for entertainment in the absence of usual leisure activities. This has been dubbed the <a href="https://www.bloomberg.com/opinion/articles/2020-06-09/the-bad-stocks-are-the-most-fun">Boredom Markets Hypothesis</a>. </p>
<p>It might also just be <a href="https://theconversation.com/gambling-on-the-stock-market-are-retail-investors-even-playing-to-win-143248">another form of gambling</a> – “taking a punt” in the absence of sports betting opportunities. </p>
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Read more:
<a href="https://theconversation.com/gambling-on-the-stock-market-are-retail-investors-even-playing-to-win-143248">Gambling on the stock market: are retail investors even playing to win?</a>
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<p>But given the significant economic uncertainty, recent gains may not be sustained. Many listed companies have withdrawn or suspended the earnings guidance they usually provide to the stock exchange – key information for investors. </p>
<p>We caution awareness of the risks in hoping for the best.</p><img src="https://counter.theconversation.com/content/142985/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carole Comerton-Forde is an economic consultant on market structure for the Australian Securities and Investments Commission. </span></em></p><p class="fine-print"><em><span>Zhuo (Joe) Zhong does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While institutional investors are selling stocks, retail investors are buying. They may not understand the risks.Carole Comerton-Forde, Professor of Finance, UNSW SydneyZhuo (Joe) Zhong, Senior Lecturer in Finance, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1432482020-07-27T19:55:59Z2020-07-27T19:55:59ZGambling on the stock market: are retail investors even playing to win?<figure><img src="https://images.theconversation.com/files/349499/original/file-20200727-23-19hrk7y.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5000%2C3323&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The COVID-19 pandemic has led to a dramatic <a href="https://www.finder.com.au/record-numbers-of-new-investors-open-share-trading-accounts">surge</a> in “mum and dad” retail investors playing stock exchanges across the world. </p>
<p>In Australia, retail investors were net buyers of A$9 billion of Australian stocks between late February and mid-May, according to <a href="https://www.afr.com/markets/equity-markets/retail-investors-pile-in-as-professionals-exit-20200710-p55ayi">corporate advisory firm Vesparum Capital</a>. In contrast, the professional institutional investors – superannuation funds and the like – were net sellers of A$11 billion of stock. </p>
<p>The amateurs are therefore likely responsible for most of the market’s rebound since its March 23 low.</p>
<p>An Australian Securities and Investments Commission <a href="https://download.asic.gov.au/media/5584799/retail-investor-trading-during-covid-19-volatility-published-6-may-2020.pdf">analysis of retail investor trading</a> shows from February 24 (the day after the market peaked) to April 3, retail investors’ daily buying and selling of stocks was double that of the months before (A$3.3 billion to A$1.6 billion). More than 20% of that activity was from new or reactivated accounts. </p>
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<img alt="" src="https://images.theconversation.com/files/349507/original/file-20200727-29-1ctplnf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/349507/original/file-20200727-29-1ctplnf.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/349507/original/file-20200727-29-1ctplnf.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/349507/original/file-20200727-29-1ctplnf.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/349507/original/file-20200727-29-1ctplnf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/349507/original/file-20200727-29-1ctplnf.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/349507/original/file-20200727-29-1ctplnf.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">bsyJS australian stocks holding up.</span>
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<p>The securities regulator has expressed concern this rush of amateurs into the stock market is a train wreck waiting to happen. Its report notes retail investors are, on average, “not proficient” at predicting short-term market movements. </p>
<blockquote>
<p>While markets generally recover over the long run and tend to grow with economic fundamentals, short-term trading and poor market timing can be a major risk for investors in volatile markets. Therefore, retail investors should be wary of trying to “play the market” for short-term price movements by day trading.</p>
</blockquote>
<h2>COVID and risky behaviour</h2>
<p>There are several possible explanations for why people are taking a risk on the stock market. </p>
<p>Some might see this as an opportunity to get into the market at a low point, with a view to long-term gains. Others might be out of work and looking to
“day trade” - buying and selling shares on short time frames – as a source of income. Yet others may be taking the opportunity of working from home to watch the market through the day. </p>
<p>But another explanation is also worth considering. This is an alternative to gambling. So while it’s risky, it’s arguably no riskier than sports betting, casinos or poker machines.</p>
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Read more:
<a href="https://theconversation.com/why-stocks-are-soaring-even-as-coronavirus-cases-surge-at-least-20-million-remain-unemployed-and-the-us-sinks-into-recession-140395">Why stocks are soaring even as coronavirus cases surge, at least 20 million remain unemployed and the US sinks into recession</a>
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<h2>Risk tolerance</h2>
<p>This theory (that this is gambling by another means) explains why the appetite for risk among retail investors has ballooned when the natural response to severe economic uncertainty would be to reduce trading.</p>
<p>The financial risk individuals are happy to tolerate – known as financial risk tolerance – is mostly determined by personality. A person’s risk appetite is unlikely to change substantially over their life, even with changing economic conditions.</p>
<p>Most people, however, are adept at making different risk decisions with money allocated to different “accounts”. In behavioural finance this is known as “mental accounting”. </p>
<p>How they think about and use their different accounts isn’t necessarily “rational”. For example, someone might be very prudent with money from their regular budget account while spending frivolously from a discretionary account. </p>
<p>So extreme risk-taking can occur when opportunities arise despite a person generally being risk-averse. </p>
<h2>Gambling trends</h2>
<p>In the first three months of the year, pollster <a href="http://www.roymorgan.com/findings/8413-online-gambling-may-2020-202005220420">Roy Morgan</a> estimates about half of all Australians gambled in some form.</p>
<p>Its figures indicated 8.4 million adults spent about A$625 million on lottery tickets, 2.4 million spent about A$2.2 billion on poker machines, and 2.1 million spent about A$1 billion on betting – horses, sports etc. </p>
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Read more:
<a href="https://theconversation.com/with-pokies-shut-down-coronavirus-stress-could-drive-more-people-to-reckless-online-gambling-134397">With pokies shut down, coronavirus stress could drive more people to reckless online gambling</a>
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<p>In Australia, the closure of pubs, clubs and casinos during periods of lockdown has severely curbed these forms of gambling. Between late March and late April, for example, the Alliance for Gambling Reform estimates gamblers saved <a href="https://www.abc.net.au/news/2020-04-26/pokies-addicts-kick-habit-during-coronavirus-venues-shutdown/12183018?nw=0">more than $1 billion</a> on poker machines. The cessation of many sporting events has also reduced betting opportunities.</p>
<h2>Pros and cons for society</h2>
<p>Does this imply people see the financial markets as just another form of <a href="https://www.tandfonline.com/doi/abs/10.1080/15427560.2010.481978">gambling</a>? If so, is this necessarily a bad thing?</p>
<p>If a significant number of people are seriously looking to “day trading” as a way to make money in the short term, the securities regulator’s concerns are valid. There is a good chance most will lose money.</p>
<p>But if these new investors are driven by their interest in gambling, substituting financial markets for poker machines and sports betting, then surely most must be prepared for losses. Very few gamblers are consistent winners from betting on games of chance or sports. </p>
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Read more:
<a href="https://theconversation.com/theres-another-health-crisis-looming-what-happens-when-the-pokies-switch-back-on-137995">There's another health crisis looming – what happens when the pokies switch back on?</a>
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<p>In this context there may not be so much to worry about – albeit acknowledging a small percentage will be “problem investors”, losing more than they can afford. </p>
<p>Compared to the almost certain likelihood of losses on gambling, those rushing into the stock market might just find it more rewarding than casinos, sports betting or pokies.</p><img src="https://counter.theconversation.com/content/143248/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The rush of ‘amateur’ investors into the stock market has regulators worried. Maybe they shouldn’t.Warren Hogan, Industry Professor, University of Technology SydneyDavid Michayluk, Professor of Finance, University of Technology SydneyGerhard Van de Venter, Associate Professor in Finance, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/889372017-12-11T03:34:04Z2017-12-11T03:34:04ZBitcoin may be reaching new heights, but the ASX shows the blockchain is reinventing business<p>Bitcoin may be the most famous example of a <a href="https://bitcoin.org/bitcoin.pdf">blockchain in use</a>, but it is actually a rather unimaginative way to use it. </p>
<p>The blockchain is finally starting to fulfil its promise as a game-changing technology, a kind of infrastructure for record-keeping. To facilitate movement of value (such as money) and changes in ownership (shares, for example), and even to <a href="https://www.ibm.com/blockchain/identity/">manage online identities</a>.</p>
<p>The Australian Stock Exchange (ASX) has <a href="http://www.asx.com.au/asxpdf/20171207/pdf/43pz030qxzdcvs.pdf">announced</a> that it will use a blockchain-based system to record who owns shares of listed companies, and to keep track of transactions and settlements when people buy and sell shares. </p>
<p>The move comes as the price of Bitcoin has <a href="https://www.coindesk.com/price/">risen more than US$14,000 in the past year</a>. Yet Bitcoin does not really exploit the new databases and record-keeping infrastructure that blockchain technology makes possible. </p>
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Read more:
<a href="https://theconversation.com/demystifying-the-blockchain-a-basic-user-guide-60226">Demystifying the blockchain: a basic user guide</a>
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<p>The blockchain is also called a “public” or “distributed” ledger. Think of a spreadsheet that is publicly available to view, and simultaneously held on numerous computers. When someone transfers a Bitcoin, it is verified by the system, encrypted, and a new line (or “block”) is added to the spreadsheet. </p>
<p>The ASX’s blockchain will replace the ASX’s <a href="http://www.asx.com.au/services/settlement/asx-settlement.htm">CHESS</a> (Clearing House Electronic Sub-registry System) system. Currently, the ASX requires each trade to be verified against the ASX’s centralised database of ownership records and reconciled with payments. </p>
<p>So while trades take place in fractions of a second, the actual clearance (making sure who owns what) and settlement (the transfer of money and shares) is cumbersome, slow, expensive, and prone to human error. </p>
<p>The ASX’s blockchain will greatly simplify this process. Instead of having to reconcile trades against a centralised database, the verification of ownership and settling of accounts can be done directly between participants (as is done with Bitcoin trades). This is much simpler, faster and more secure.</p>
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Read more:
<a href="https://theconversation.com/whats-holding-up-the-blockchain-79038">What's holding up the blockchain?</a>
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<h2>A monumental shift</h2>
<p>The fact that the ASX’s blockchain announcement made headlines <a href="http://www.bbc.com/news/business-42261456">around the world</a> shows what a big leap forward this is. </p>
<p>The ASX’s blockchain will streamline the settlement process, improving productivity and therefore reducing costs in the Australian stock market. This means that our financial markets will work better, offering an immediate benefit to Australia’s economy.</p>
<p>Exchanges are also a global business, and the adoption of blockchain technology in Australia’s major exchange means that it has a competitive edge over other exchanges. </p>
<p>Companies choose where to list, based on a variety of factors including the quality of the exchange technology. More business for the ASX will translate into more local jobs.</p>
<p>One potential downside of the ASX adopting the blockchain, however, is that some workers who currently process settlements on the ASX may lose their jobs. Some financial companies that currently benefit from the slow settlement process, such as brokerage firms, will also lose out.</p>
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Read more:
<a href="https://theconversation.com/blockchain-really-only-does-one-thing-well-62668">Blockchain really only does one thing well</a>
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<p>But the ASX’s move is just scratching the surface of what blockchain technology can do to the Australian financial sector.</p>
<p>The same argument that applies to the ASX - that the blockchain is more efficient and productive than existing record-keeping and transaction processes - can also be extended to other exchanges, such as bond markets. </p>
<p>In other words, the ASX’s blockchain is just the beginning of a technological transformation of Australia’s financial markets. </p>
<p>Blockchains will also make these exchanges more attractive to build services on, such as for managing wealth. This is a further benefit for consumers and the broader finance industry, not purely from lower prices also from the possibility of new products and services. </p>
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Read more:
<a href="https://theconversation.com/the-blockchain-does-not-eliminate-the-need-for-trust-86481">The blockchain does not eliminate the need for trust</a>
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<p>But how is any of this even possible in the first place? Part of the credit must go to Australian regulators. They created the environment for this huge shift in technological practice.</p>
<p>Australia is now leading the adoption of the blockchain, despite it being a US-built technology. It is similar to how African telecommunications companies are <a href="https://www.safaricom.co.ke/personal/m-pesa">leading the way in mobile payments</a>, even though Finland created modern mobile phones with companies like Nokia.</p>
<p>Even if you’re not excited about new technology in the Australian finance industry, its global competitiveness, or even our regulatory agility, the ASX announcement is a harbinger of what adoption of blockchain technology will increasingly look like.</p><img src="https://counter.theconversation.com/content/88937/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jason Potts has received funding from the Australian Research Council. He is affiliated with the Institute of Public Affairs. </span></em></p>While everyone has heard of Bitcoin, the real potential in the blockchain is only just starting to be unlocked.Jason Potts, Professor of Economics, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.