International News (Issue 366) – 28 August 2015

I feel like I have covered off a lot on international markets already in my comments above and in fact in the piece to clients on Tuesday. However, there are one or two additional observations to make.

Firstly, the Chinese share-market fell a whopping 16% on top of the 7.4% fall last week.

The fall is again driven by the slowing growth in China, and concerns that the government is potentially not the omnipotent policy beast the population and investors had come to assume it was. The debate is out on that, but either way, shares are now down 40% from their highs, and finally looking a little better value.

Forgetting the market volatility this week, the major news to emerge was the decision by the Chinese central bank (PBOC) to lower interest rates and to free up bank capital for lending.

The decision was seen as a necessary move in light of recent economic weakness (Chinese manufacturing at its lowest growth rate since the aftermath of the GFC in March 2009) and the unknown effect of China’s stock-market fall on consumer confidence.

In addition to the interest-rate cut, Chinese authorities also expanded the program for local government authorities to swap out of their significant debts at low levels of interest rates. This is China’s own form of Quantitative Easing (QE) to some extent (alongside share-market support), but is a significant one for the economy in the sense that it allows the local governments (who are the lifeblood of provincial economies) to raise their potential to spend.

We think the China (& Asian) share-market has come back a very significant way and potentially looks to be finding a base. The economy on the other hand is an unknown and we retain some caution for the implications of weaker growth on global corporate profit margins.

In the US this week much ado was made about the potential delay in US interest rate tightening brought on by the bout of share-market weakness seen.

To be honest, this topic bores me to tears since it is once again so incredibly myopic and driven by the short term. Whether the Federal Reserve raise in September (as I think they should) or December is totally irrelevant to where markets are headed on a 12 month+ basis. 

Disclaimer:  The information contained in this presentation is for informational purposes only and is not intended to be exhaustive or complete. This information does NOT constitute financial advice and should NOT serve as the basis for any d ecision by you. The information does not take into account the objectives and circumstances of the individual investor and we recommend that you consult a financial adviser should you have questions regarding the information contained in this presentation.
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