The Australian stockmarket is heading for a flat opening this morning and it wouldn’t surprise if the markets then edge lower after the less than cheery end to trading on Wall Street at the weekend.
Traders across Asia will be watching for the reaction in the Chinese and Hong Kong market to the news that the government had directed the country’s banks to continue funding up to $US3.5 trillion of local government infrastructure projects, many of which are broke and close to collapse, according to a string of reports in recent months.
The decision from the country’s State Council – its cabinet – was announced in a statement and posted on the websites of the central bank, the Finance Minister and the banking regulator.
It makes clear that all projects started before the end of 2014 by local government will have to be supported financially – whether they are solvent or not.
In other words the government has blinked and has directed state-owned banks (most of the banks in China) to bailout the heavily indebted projects and therefore their government sponsors.
The news is a form of stimulus not unlike the three interest rate cuts and the two reductions in the official reserve asset ratios of the banks since last November, all aimed at stimulating the economy without spending too much new money.
Now the government has changed tack and changed it significantly.
Instead of the money that will now be spent bailing out these projects being spent across the economy, it will go to keeping these dud projects open and employing millions of people. The latter factor is the real intent of this directive and essential to central government control.
The big question now is whether the move convinces Chinese investors after the increased volatility in recent weeks on fears about the slowing economy and rising bad debts.
So watch the reaction in the Shanghai and Hong Kong markets today – especially in the share prices of the big Chinese state-owned banks.
A question left unanswered so far is whether the bailout money will come from the government, the markets or via the banks own funding, or whether the government will progressively reduce the reserve ratio, thereby freeing up more money for lending.
Eurozone shares sold off on Friday night, down by up to 1.2%, US shares rose less than 0.1% to a new record closing high for the S&P 500, Australian and Japanese shares both rose and the Shanghai market fell 1.5%.
Over the week, Eurozone shares fell 1.2%, US shares rose 0.3% to a new record closing high, Australian and Japanese shares both rose 1.8% and Chinese shares rose 2.4%
And the $US continued to fall on soft economic data. The Aussie dollar closed just under 80 USc on 79.97 early Saturday.
The S&P 50 rose 1.63 points, or 0.08%, to end at 2,122.73 early Saturday, a long way from the 1% jump on Thursday.
The Dow was also subdued, rising 20.32 points, or 0.11%, to end at 18,272.56. The Nasdaq dropped 2.50 points, or 0.05%, to 5,048.29.
For the week, the Dow closed 0.4% higher, the S&P rose 0.3% and the Nasdaq added 0.9%.
In Australia the All Ordinaries rose 0.7% on Friday and 1.7% for the week to close at 5730, while the ASX 200 index jumped 0.7% on Friday and 1.8% for the week to end on 5735.5.
Retailers stood out here because of the small business investment boost in the budget and a better than expected third quarter sales update from Myer.
As a result, Myer shares jumped 3.3% to $1.56, Dick Smith was up 6.2% to $2.23, JB Hi-Fi rose 8.1% to $21.46, Harvey Norman added 5.8% to $4.60, Wesfarmers gained 2.8% to $44.97 and Woolworths surged nearly 6% to $29.
And Metcash was the most heavily traded big listed company on the ASX on Friday. Its shares shot up 12.1% to $1.44. It’s reportedly planning to spin off its automotive parts business (Autobarn) in a $350 million float. Perhaps there was some ‘inspired buying’ on Friday ahead of an announcement?
Elsewhere, shares in both Sirtex and Resmed found support on Friday. ResMed was up 3.9% for the day, but down 16% for the week to $6.99. Sirtex was up 3.7% for the day, and an amazing 40.2% the week to end on $28.00.
