By Raymond Chan

The month of June has all the makings of an intriguing month for investors with the macro-economic calendar punctuated by OPEC meeting (2 June), US central bank’s FOMC meeting (14-15 June), UK ‘Brexit’ vote (23 June) and of course the Australian Federal Election (2 July).

Any of those events have the potential to derail positive momentum from February.

Our strategist suggests that “without the strains in credit markets from earlier in the year, a vastly improved US economy and commodity prices rebounding sharply off their lows – not withstanding some speed humps – we don’t believe the pre-conditions for a sharp correction (i.e. 10% fall in ASX 200) are in place.” 

However, Latte with Ray can’t rule out a market breather (say a fall of 5% back to 5,200 ASX 200 level) from potential tax-loss selling of our blue chip stocks.

It’s without doubt that our blue chip stocks have been significantly underperforming the ASX 200 index for FY15/16. In the month of June (i.e. last month of the financial year), some investors may wish to sell down the loss-making blue chip stocks and crystallise the loss for tax purposes. 

Performance since 1 July 2015 (excluding dividend)

  • ASX 200 -2.5%
  • ANZ -21.6%
  • CBA -9.6%
  • NAB -15.9%
  • WBC -4.7% 
  • BHP -28.4%
  • RIO -15.7%
  • ORG -45.2%
  • WPL -21.0%
  • QBE -12.0%
  • TLS -9.1%

Latte with Ray would like to take this opportunity to warn investors who wish to sell shares at losses, and then buy back the same stocks for tax minimisation purposes.

The Tax Office has issued a ruling which discusses the application of the anti-avoidance provisions of Pt IVA of ITAA 1936 to “wash sale” arrangements.

The term “wash sale” in commerce is used to describe the sale and purchase of the same, or substantially the same, asset within a short period of time of each other. The sale and purchase cancel each other out, with the result that there is effectively no change in the economic exposure of the owner to the asset. If you’re seen as engaging in “wash sale” activities, ATO may cancel tax benefits and apply penalty. Also seek advice from professional advisers!

The tax-loss selling, on the other hand, could create an opportunity for us to buy and get our portfolio set for FY16/17.

History suggests the worst performers in June are likely to be the outpeformers in following months.

Further, we continue to see consensus expecting earnings recovery in FY16/17.

Latte with Ray will use any potential weakness in June/July as opportunity to accumulate quality stocks.

Disclaimer: This report is provided for general information purposes only and is not intended as an offer to enter into any transaction. This information contained in it is not necessarily complete and its accuracy cannot be guaranteed. We have prepared this presentation without consideration of the investment objectives, financial situation or particular needs of any individual investor.