A surprising rebound in previously unloved Australian stocks is disrupting the long-standing tax-loss selling strategy, which already faces threats from proposed government changes to capital gains tax. Historically, the ASX’s poorest performers typically see a wave of June selling as investors crystallise losses to offset capital gains, a tactic effective 72 per cent of the time since 2000, according to MST Marquee. However, growing domestic economic concerns have triggered a rotation into “quality stocks,” prompting a shift in this predictable market pattern.
This year’s disruption is significant: Goldman Sachs’s basket of tax-loss selling candidates has notably beaten the broader market by 6 per cent this month, the largest outperformance since the global financial crisis. Historically, the 20 worst-performing S&P/ASX 200 stocks lagged by a further 4 per cent in June. Adding complexity, the Albanese government’s proposed capital gains tax changes, effective July next year, will replace the 50 per cent discount with an inflation indexation model where capital losses are not indexed. MST analyst Hasan Tevfik suggests investors might preserve losses for this new regime, potentially leading to more subdued tax-loss selling seasons.
Nevertheless, Bell Potter’s Richard Coppleson sees continuing opportunities. He observes many laggards typically rebound from late June into mid-July as selling pressure eases, driving bargain hunting. Coppleson advises investors to target liquid ASX 200 stocks with strong fundamentals and “buy” or “neutral” broker ratings. He highlights healthcare giants CSL, a global biotechnology company, and Cochlear, a medical device company, along with logistics software developer WiseTech Global, as potential recovery plays. Conversely, Coppleson cautions against online furniture retailer Temple & Webster, cloud accounting software provider Xero, and property and infrastructure firm Lendlease, warning that any rally in such stocks might only be a “dead cat bounce” if fundamentals are lacking.
