ASX tracks the ASX

After failing to merge with the Singapore exchange the ASX has languished in the doldrums. For the last year or so  the share price has pretty much tracked itself (the All Ords), which is hardly surprising. Deutsche has a hold recommendation and there seems little reason to disagree. The target price is a very modest $31:

Despite some seasonal support from company reporting, cash equity turnover remained soft in August with rolling 3 month velocity now at 75% – a level not seen for a decade. Furthermore, with derivative volumes now heading the same way and little IPO activity, we believe consensus earnings risks remain to the downside. With ASX trading at 15.5x FY13F earnings with only 6% 3yr EPS CAGR including -1% for FY13F, we see few near-term attractions. Hold. Equity velocity not improving with markets Although equity markets have improved since June, turnover has shown little improvement, averaging $3.9bn/day in August vs $3.7bn/day in Jun/Jul. The lack of momentum reflects ongoing weak velocity (77% in Aug) and while we forecast velocity to lift 20% over the next three years, the drag from steadily rising market share losses to Chi-X (3.5% of turnover in Aug-12) suggests ASX may not exceed FY12 cash equity turnover levels until FY16.

Volume on the Sydney Futures Exchange are down by a quarter from the level in mid-2011, which is interesting. It suggests that there is general uncertainty about the direction of the markets, making traders extremely wary of any plays. Capital raisings and IPOs are pretty weak. It is interesting to see Deustche’s upside and downside risks. On the supside there is the risk of rerating and recovering global share markets. On the downside it metions introduction of a clearing competitor, equity market decline, trade consolidation towards institutional investors over retail and potential technology issues. But there is no mention of the meta money problems such as the dark pools and high frequency trading. They surely pose the biggest threat to retail investment.

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