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

To view the Rivkin economic calendar and Global Markets matrix, members can click here.

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.

Complex product warning

This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
comments powered by Disqus

DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice and dealing services on securities, derivatives and superannuation (SMSF). Rivkin also provide SMSF administration and accounting services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.