Risk Aversion Builds
Global equities markets have come under fire on Friday following news that struggling Chinese property develop Evergrande failed to pay its $180 million interest payments yesterday. This marks the second of such payments to be missed this week. Evergrande has been at the heart of the risk off move in markets over recent weeks with the world’s most indebted property developer on the verge of collapsing over liquidity issues. The contagion fears have sparked widespread sell offs across global asset markets.
Contagion Risks
The collapse of such a firm would have devastating effects for the Chinese and global economy alike and is creating significant investor uncertainty. As it stands, investors are trying to gauge whether the company will simply implode (worst case scenario), causing wide reaching damage for all of its creditors, undergo and orderly breakup (still damaging but to a less extent) or receive a bailout from the Chinese government (highly unlikely but would be best for markets).
Eyes on China
The issue creates further challenges for China at a time when the world is already beginning to question the health of the recovery there. Data this week showed that the Chinese factory sector fell back into contractionary territory in September, falling to 49.6 from 50.1 prior. The country has recently undergone disruptions caused by extreme weather episodes and regulatory issues which have impacted business activity.
The situation is having a broad impact on markets as shown by the heavy declines in the ASX200 this week. The main Australian share index is taking the brunt of the news as investors fear the lessening of trade flows between Australia and China (its biggest trading partner) should Evergrande collapse. AUD and Aussie assets are often used as a proxy for trading China given the close links between the two, with current price action serving as further evidence of this.
Technical Views
ASX200
Following the breakdown below the long-term rising trend line, the ASX is now trading within a bearish channel. Price is currently testing the 7173.9 level though, with both MACD and RSI bearish here, the focus is on a continuation lower towards the 6899.4 level next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.