The stock market is going to crash in a matter of days, and it will probably happen in Australia too.
The country has suffered a spate of financial meltdowns in recent years.
In October, the Australian Securities and Investments Commission (ASIC) found that “the total value of Australian-listed companies had been more than halved since the financial crisis” in a report that was widely criticised.
And last month, ASIC also warned that the “risk of a significant correction in Australian equities has increased significantly in the last six months”.
In the wake of the election, the ASIC said that the market’s outlook for 2020 and beyond was “considerable” given the economic uncertainties.
It was the latest warning that the markets were heading for a panic.
It’s a sentiment shared by many investors, who have been putting their money in Australian shares.
“I’d say about 60 per cent of Australians are already invested in Australian stocks,” says David Schoenfeld, chief executive of the ASX-listed fund AussieFunds.
“So, for the majority of Australians, it’s a safe bet to bet on a global market going into the 2020s.”
In fact, this year, Australia has had three “all-out” market crashes, according to Bloomberg.
“It’s the most recent one that happened before the Brexit vote and we had a similar one last year,” says Schoenfeld.
But, according for a lot of investors, that’s not really the case.
The financial markets have been hit hard by the election result, with the Australian dollar hitting an all-time low against the US dollar in February.
Inflation has been running at around 3 per cent since January, and the Australian unemployment rate stands at about 8 per cent.
It has been a difficult year for Australian businesses, as they have been forced to slash jobs.
There are also concerns about the Brexit decision, which has been the subject of intense criticism from the US, with both sides blaming each other for the outcome.
And as for Australia’s economy, it has struggled to recover from the global financial crisis that hit the world economy more than a decade ago.
Investors are looking for a quick return to normalcy.
But what about Australians?
What are their concerns?
What is the future of Australia’s stock market?
The answer is not all that clear.
“For most Australians, the most worrying thing is a global economic crisis that will be felt in 2020,” says Shihab Rattansi, chief investment officer of the Australian Funds, a fund focused on Australian companies.
“This is going the wrong way for Australian investors, and this will be compounded by a political crisis in the US and China.”
But he says that investors should “avoid panic” and “focus on the long-term economic benefits”.
For those investors, it will be a tough decision to make.
Investors like to have certainty about their investments.
But with an all out market crash, investors might be reluctant to take their money out of the market.
“The risk is that the stock market will collapse in a short period of time,” says Rattanso.
“If that happens, it would be very difficult for people to sell their shares.”
So, what can investors do?
It’s hard to say how to make this decision when you’re a long-time investor in a market where you’re betting your future on what happens in the future.
But there are some things you can do.
The first thing is to stay focused on the “short-term” market.
The short-term is when a market is in its infancy and investors are still adjusting to the new economic realities.
Investors should “buy a long term asset like stocks or bonds”, says Rattinso.
But “if you’re not ready for this, it may be better to wait for the long term market to crash.”
If you’re in the market long-standing, the next thing to do is “buy the long market”, says Schienfeld.
“Buy the long stocks in the short term.
But then, if the market crashes it will affect the long markets too, so buy the long short stocks.”
This is where “short selling” comes in.
The idea is to sell your long-dated assets in a way that lets you sell them on when the market hits a big correction, says Rattos.
And you can also “short sell” your long positions when the long stock price is low, so you can sell them for lower prices in the long run.
The other thing to remember is that “short stocks are much more liquid than long stocks,” adds Schoenfield.
“Long stocks are liquid and they’ll last longer than short stocks.
So, you can use short selling to buy short stocks and sell long stocks.”
But that might not be the best idea.
“Short selling is risky,” says Sc