The Day Japan and China Shook the Aussie Market

There’s no doubting that yesterday was a tough day for Aussie stocks.

The benchmark S&P/ASX 200 index fell 103 points. That’s a drop of 2%.

Some stocks fell even more. Myer Holdings [ASX: MYR] fell 6.3% and Westpac Banking Corporation [ASX: WBC] dropped 4.1%.

So, why the gloomy price action?

As Murray Dawes accurately pointed out yesterday, it’s all about Japan…

In fairness, it wasn’t just yesterday that Murray warned you about Japan. He’s banged on about Japanese bond yields and the yen for weeks.

And yesterday, the chickens finally came home to roost for the Japanese market. As bond yields hit 1%, the Nikkei225 dropped 1,143 points. That’s 7.3% in one day, in case you’re wondering.

That’s a big drop. In fact, you could say it’s a nuclear sized drop. The last time the Japanese market fell this much was in March 2011, following the earthquake and tsunami that led to the Fukushima nuclear reactor meltdown.

Although we will make one point before the gold bugs say, ‘Ha, we told you shares were risky.’ While the Nikkei225 fell 7.3% in one day, the gold price in Japanese yen is down 9.8% since early April. And over the past year, yen gold is only up 15.9% while the Nikkei is up 74.6%.

So in terms of the better asset to combat inflation, for the Japanese at any rate it has been stocks, not gold.

(You know how much we like gold. We’re not bagging it; we’re just telling it how it is…which is what you’d expect from us.)

But it wasn’t just the news out of Japan that roiled the Aussie market

Whose Numbers do You Distrust the Least?

Yesterday, HSBC released its monthly Flash Purchasing Managers Index (PMI) number. It wasn’t good. It reveals that perhaps the Chinese economy is contracting.

Or does it? We asked our old pal, Diggers & Drillers editor, Dr Alex Cowie for his take on the number. (The Doc is our go-to man when it comes to commodities and China).

Here’s what he told us:

The Flash HSBC number out Thursday was 49.6. Anything below 50 is supposed to suggest industry is contracting. The Flash HSBC number is a warm up for the HSBC final number at the end of the month, which is normally pretty close to the flash.

What’s far more important is the official number. Just because the flash number is under 50, doesn’t mean the official number will be too. So I never read too much into the flash number. I take the official number with a grain of salt too, as it’s a government statistic.

The Doc also put together a nice chart showing how the HSBC number differs wildly from the official Chinese government figure:

As the Doc says, you can’t really trust Chinese government numbers…any more than you can trust Aussie government numbers if we’re honest.

On top of this you’ve got US Federal Reserve chairman, Dr Ben S Bernanke, blowing his horn about the conditions under which the Federal Reserve may (or may not) cut back on its money printing and bond buying program.

But we know that big and small businesses are still doing business regardless of what’s happening in China or Japan. The two ‘Cash Box’ stocks we tipped this month in Australian Small-Cap Investigator opened their doors yesterday and served customers just as they did the day before. And we dare say they’ll open their doors and serve customers today too.

The same goes for the four ‘Money’ stocks we’ve tipped, the property stock and others among the 23 stocks on our buy list.

Cheers,
Kris

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From the Archives…

The Foundations for the Great Lie We Have Built Our Lives Upon
17-05-2013 – Vern Gowdie

How the Aussie Dollar is Running Out of Friends, Fast
16-05-2013 – Murray Dawes

STOP PRESS…Resource Stocks Pay Dividends Too

15-05-2013 – Dr Alex Cowie

‘Best Week in Four Years’: Resource Stocks are Starting to Move…
14-05-2013 – Dr Alex Cowie

Why You Won’t See Me on ABC or CNBC Discussing Financial Markets…
13-05-2013 – Kris Sayce

Australian Small-Cap Investigator:
How to Make Money From Small-Cap Stocks


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read. Money Morning Australia is published by Port Phillip Publishing, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.


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