Chinese investors get jumpy, Dick Smith's Christmas sales fail to pay debts, ASX futures down 34 points

Chinese stocks sold off by 7% yesterday, triggering selling in other global equity markets. Why? No great reason, the Chinese PMI data released--irrespective of what you read--was not remarkable - it came in at 48.2 versus expectations of 48.9 and a previous read of 48.6. The margin of error on this stuff is about half a percent in developed markets, presumably more in China. So what did the PMI data tell us? The data told us that manufacturing in China continues to contract. We knew that. The world is no different today to what it was yesterday, and the theme of a struggling China curtailing global growth continues, as expected.

Today's first chart is probably the spookier of the two Chinese charts today - it shows the RMBUSD pushing lower (remember what I said in December about a continued effort for Chinese currency valuation), and this is what has the ability to prompt currency wars regionally in Asia as China attempts to win back any market share lost to India, Vietnam, Indonesia, Thailand etc during the boom times when complacency was higher. And short, sharp shocks relating to Chinese currency valuation will likely be just that (short and sharp), so I suggest anyone with a decent amount of cash arms themselves with a wishlist of stocks that they'd like to own if they were a bit cheaper. We will begin publishing value and growth stock picks for Rivkin Local members who wish to take 'off-model-portfolio' positions.

Today's second chart is the iShares CSI 300 Chinese equity ETF, which puts some perspective on yesterday's Chinese equity movements. It is a big market, but it is highly volatile and driven by huge amounts of speculative trading as opposed to investing. The money is quick, hot and--much of the time--leveraged. It is not a good barometer of the Chinese economy, as demonstrated by the 2014/15 rally at a time when Chinese import/export data and GDP growth worsened.

Iron ore firmed 1.84% overnight alongside gold (1.20%) and silver (0.36%), and mixed results in crude markets mean that Australia isn't likely to be hit by fresh commodity pessimism today, even though copper was slogged by 2.51%. For this reason ASX 200 futures are trading just 34 points lower this morning, helped in part by a near 20-point rally into the close for the US S&P 500 equity index. Today's last chart shows the percentage movements since yesterday's 4:10pm closing auction between the ASX 200 futures (black) and those of the S&P 500 (orange).

Lastly, Aussie retailer Dick Smith (DSH)--in hindsight--was clearly taking a big bet by attempting to fuel it's Christmas run with huge discounts on ageing inventories after its massive write-down earlier in October last year. Unfortunately it didn't work, its creditors got sick of waiting to be paid, and the company has been placed into voluntary administration. DSH may or may not trade again, and shareholders will receive correspondence from the administrators in due course
  


Source: Rivkin, Saxo Bank

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This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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