Chinese state money said to be propping up CSI 300 equities, small gains in Europe/US, ASX futures up 15 points

After being shut down on Monday following a 7% decline, the CSI 300 resumed trading yesterday and managed to close a touch higher. There are reports that state-owned Chinese brokers are carrying the market. Following its lunch break, the CSI 300 sold off 120 points (3.5%) in an hour before staging a fairly miraculous recovery into the close, so I wouldn't be surprised if a lack of natural buyers is being substituted with state-directed trades. This will probably prove effective, as speculators will be disinclined to sell shares if they are convinced that higher prices will follow any sharp sell-off. Outside of the CSI 300's "A shares"--occupied by the largest and most liquid Chinese shares--the Shenzhen and Shanghai Composite indices continued to trade lower.

But again I will reiterate my nonchalance with regard to Chinese equity volatility, given the speculative nature of this market and its ability to be patched up when things go awry. The bigger issues for Australia and indeed much of the globe are growth in demand for goods manufactured in China from its biggest customers (The US and Europe), and a containment of any shocks that occur as China continues to put downward pressure on the yuan.

There are no new reports today from Dick Smith Holdings (DSH), other than news reports that HVN boss Gerry Harvey has ruled out buying the business or any of its property assets. There is a lot of vilification of private equity firms going on given DSH's demise since its $520 million listing two years ago when it was sold to investors by Anchorage Capital, which subsequently sold out of its holdings in late 2014 for $105 million, a value higher than DSH's market cap before it was suspended on Monday. But I think this is unfair, investors need to be aware of what they are buying and one should always apply the old Rivkin Rule, "When buying shares, ask yourself, would you buy the whole company?" On top of this, it was a huge and poorly-judged bet made by DSH management in buying inventory in an attempt to cash in on a strong Aussie dollar that brought the company undone - this was not the doing of Anchorage Capital. I suspect that this story will help make value investing combined with traditional due diligence become fashion once again, especially when a listed vehicle is so reliant on just one business or brand.

Today's charts show the ASX 200 failing to break new highs since August 2015 volatility, and the Aussie dollar failing to snap back since markets were knocked around on Tuesday night. As reported by our FX Analyst Richard Sexton, the AUDUSD is sitting on a 50 & 100 day moving average at present and needs find support here if there's going to be a chance of a move higher later in the week.

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 or by phoning +612 8302 3600.

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