I appeared live on Channel News Asia again this morning at 6:20am SGT. My questions and my responses in the form of brief notes are below:
Q1. What can we expect from the Australian market today?
There is likely to be a decline in the ASX today. It has been in an established medium term trend of late yet well supported by the 5400 level over the last month and more recently the 5500 level. Futures markets are pointing to a decline in the order of 40 points and after a poor U.S. lead and further concerns about the China market, this is now widely expected.
Q2. The Shanghai Composite index plunged 8.5% yesterday, will further weakness in Chinese stocks spill into the Australian market?
It is hard for a market to be immune from the China market. You would like to think what is going on in China should have little impact on the Australian market, however this is impossible. I think most markets are looking in on China with great interest and there is a feeling that is should be kept in isolation. Unfortunately the China market has been behaving more like a gaming / casino environment in the last 12 months with pure speculation and not lots of rational behaviour. For this reason alone, hopefully any further weakness won’t spill over into Australia or other countries.
Q3. Will Australian bank shares fall further in the coming months?
They may fall a little further in the short term. The 4 big banks are all major components of the ASX 200 index, with all of them also being constituents of the ASX20 index. Having said that, all 4 banks are being very well supported by long term support levels, in $80 for CBA and $30 for ANZ, NAB and CBA, none of which are that far away from current prices. Any decline is likely to be short term as the technical support levels kick in and prop up prices.
Q4. The Australian dollar stayed near 6-year lows against the US dollar. Will the Aussie resume its downward spiral in the short-term?
Definitely. Last year the AUD/USD fell strongly from around 0.95 down to 0.75. It has spent most of this year trading in a range roughly between 0.75 and 0.7850 and now it is threatening to move lower. It has done well over the last couple of weeks to arrest the slide and consolidate around 0.74 however now it has moved lower and is threatening to continue its decline. The downside risk is real and the AUD/USD could easily fall lower and below 0.70 is well within reach.
Q5. Commodities from iron ore, copper, oil and gold have shed value as the current extended price boom wanes. Are resources stocks on the decline?
Yes they are. We are already seeing the decline in commodity prices spill over into resource and energy stocks. In the ASX, the last couple of weeks has seen energy stocks decline sharply and move from one of the best performing sectors over the last 3 months to now being the 2nd worst performing sector in the last 3 months. This is a major reversal within sectors and is highlighting the bigger concern with declining commodity prices.
Q6. What’s your outlook for gold price over the next 2 years?
Nothing good. Several years ago we saw gold climb $1800 as there was a genuine demand for a ‘safe haven’ asset however this demand has clearly declined sharply. The fact that we are likely nearing when the Fed raises rates for the first time in 9 years, echoes the decline for safe havens. Even though $1000 is a little distance away, it is well within reach and if the demand for safe haven assets continues to decline, then gold has some more distance to go yet before bottoming out. I see a slow and steady decline for gold in the next 2 years.