International News (Issue 359) – 10 July 2015

Greece. Ugh.

And on and on it goes.

It’s Friday morning and the newswires are alight with details of Greece’s new proposal to the European Union. Trouble is, the proposals are supposedly extremely similar to the plan offered by the EU to Greece a fortnight ago, which the Greeks then had the temerity to call a referendum on and at which over 60% of the Greek population voted against.

Say that again Jono?

Yes, the Greek proposals seem extremely similar to the very proposals the Greek people voted overwhelmingly against only last weekend. Moreover, they again explicitly lack any detail insofar as genuine pension reforms – a major sticking point for the European creditor nations.

Moreover, the plan offered initially by the EU to the Greek government a fortnight ago has in fact been rescinded by the EU since the Greek economy has collapsed in the past fortnight under the weight of the bank closures, and many of the assumptions in there no longer hold water such has been the extreme capitulation in Greece’s economy.

So, I have to say, whilst a plan has surely been presented to the EU, it seems still far from clear as to the likely acceptance nor ultimate outcome of the negotiations. The plan is for the Greek parliament to ratify this proposal today, Friday, for the proposal to then be presented officially to European leaders on Sunday, and then depending on its acceptance have it further ratified by Greek parliament next week.

Phew.

China. Arguably as big a deal for Australian shares as the Greek farrago, but certainly an even bigger deal for the Australian economy potentially.

This week Chinese shares are down roughly flat, but were down 8% at one point, making that index a full 35% from its June highs.

But the significance of the China share-market moves are big.

Amongst a variety of observations on China this week, the one that stood out to me was that mid-week as the selling momentum reached a crescendo, over half of the mainland listed Chinese equities were SUSPENDED from trade. In fact, hundreds of shares were suspended at their own request for ‘self-rescue’ or ‘capital preservation’ – this is code for saying we don’t want people selling our shares aggressively. It is a complete joke and a hugely concerning for those investors there.

During the week, authorities also placed a ban on ‘insider’ selling (ie management/directors) for the coming 6 months.

Whilst the efforts of the authorities to bolster the market are admirable in their intent (and do note over the past weekend there were several measures announced that aimed to stabilize the market), in practicality these strained attempts to underwrite the stock-market are in fact threatening the credibility of the regulator, the central bank and the government themselves.

Imagine trading in a market where you are told you cannot sell your shares for no other reason than that other people were selling them?

I could talk for hours on China and still not come to a conclusion on whether it is on a sure footing, or in fact whether it’s the equivalent of a ‘jenga’ tower. Fortunately, we have both Kerr Neilson and Andrew Clifford from Platinum in seeing us next Wednesday, and we will hence have an excellent opportunity to ask the ‘Asian experts’ on how they see the recent Chinese share-market weakness impacting the economy.

For my 2 cents, one thing I am sure of is that a 35% fall in the share-market WILL have a natural impact on Chinese consumer confidence and household spend. To the extent that Australia has been a major beneficiary of Chinese capital flows, I would expect this to slow somewhat.

I’m being slightly facetious when I say this:

…. but I do think the Chinese stock-market fall will have an impact on the glut of inner-city apartment building that has gone on through Sydney and Melbourne in recent years.

I am convinced that demand for these apartments from mainland investors will prove a huge disappointment.

Turning to the US this week, there was little to comment on. The Federal Reserve meeting minutes were released and shed very little light on plans for the first rate rise – still September we think, but pending Greece to some extent.

SPEAK WITH US TODAY

A unique and personal service approach and support for all your business advisory and personal wealth management needs

Request a free consultation

A unique and personal service approach to support all your business advisory and personal wealth management needs.

Request a free consultation