Volatility my China

“This may be a bigger case of kicking the can down the road. Remember that Greek GDP is around the $250 billion mark, the Chinese stock market lost around 12 times more than that in 3 weeks! The market probably pays more attention to Greece because it is a little closer to home and because the assumption is that the Chinese authorities will do what they need to do to fix the problem in the end.”

To market to market to buy a fat pig. The two major themes for last week continue with new developments this week. On Sunday the referendum in Greece went ahead with the “No” vote coming out on top. 60% of the people voted that they don’t want to accept the bailout terms. Going into the vote, forecasts from the polling companies showed that it would be a very small win for the “yes” vote. This is another big miss for the forecasters after getting a big miss on the UK election and the Scottish referendum.

What next from here? Greece will submit a new proposal to its creditors, there will be more meetings and hopefully some resolution. I don’t see this being a quick process resulting in the people on the ground feeling it the worst. The Syriza party had indicated a “no” vote will result in them having a stronger hand in the negotiations and should lead to banks being opened early this week. I cant see the banks being opened until there is more funding for them which won’t come to fruition until their is a deal made. You might even find that the 60 Euro withdrawal limit will drop further as the Banks struggle to stay liquid.

The Greek people have spoken though and their vote will mean there is a stark difference in the direction that Greece will head. A 60/40 split definitely shows which direction the majority of the population wants to go it but what happens if this ends up going badly? (I think that either path will be hard). What happens to the 40% who voted for another direction? I suppose that democracy is about competing views coming to the fore and the most popular view coming out on top until the next vote. Do the collective know what is best though? I have seen respected commentators saying that the matter was too complex to go to a vote and this is why you have elected leaders. They can see all the different options and need to make the hard choices. For instance the vote was based on a bailout option that had already expired, if the terms of the bailout were different the vote would have been different. How is the man on the street expected to know the implications of taking bailout x as opposed to not taking it? I have spoken to a couple of people on the ground and there seems to be a large amount of confusion about the facts. I don’t think a referendum can truly capture people’s views and feelings on the matter.

The first causality of the weekend has been the Greek finance minister, Yanis Varoufakis who tweeted he was stepping down as finance minister. Here is the link from his tweet – Minister No More!. Here is the tweet:

Here is a view from one of our readers, Antonella. She has also been visiting Greece over the last week.

“Athens, for me is a magical place of contrasts! The rich modernity of thought, that went into the construction of the Acropolis and Parthenon, contrast the complete disarray their economy finds itself in. “Oxi” (no) and “Nai” (yes) signs camouflage the subway entrances, while determined hopeful youth, stand outside hoping to sign you up, to come to one of the demonstrations. Hordes of pushy passive protestors busked past on Ermou Street, on their way to a protest held outside parliament yesterday. Many people prominently displayed “Oxi” stickers on their shirts. One lady stood to one side of the street and vivaciously tried to convince another woman, through hand gestures and loud talking that “Nai” was the best way to go.

Greece goes to a vote on Sunday, on whether or not to conform to the austerity measures put to them by the European Union. The severity of the money stricken city can be definitely be seen all around. We recently tried to go to the Contemporary Art Museum, which was prominently displayed on our map. Only to find on arrival that it had been closed down, and re-established as a school. Weeds and un-manicured lawns engulfed the premises, as mowing the lawn was obviously not a priority at such a time. This untidiness contradicts, the Northern Suburbs of Athens. Kifissia, is one of the most wealthy leafy suburbs of Athens. It consists of many embassies and villas. Even the wealthy there don’t escape the crisis, every street corner or ATM point, showcases a disgruntled troop of people waiting to withdraw, their limit of €60 per day. This amount is not cumulative, and has to be drawn out on a daily bases as my local Athenian later found out. She even mention that they don’t even get the fully amount out as the ATMs have run out of €10s.

If you want to stop a country from running efficiently, shut down the banks. The ripple effect of this has been catastrophic, with pensioners being the hardiest hit. Some of them have resorted to begging in the streets. A large concert scheduled for Friday night was canceled over the radio, due to the artists sheer fear of not being paid, even though it had been organized more than a year ago. Yet the Greek way on life still carries on, locals meet up for their gyros and frappies at local bars. When asked about the crisis, they do seem worried. Crisis or no crisis, I do admire that the Greeks ability to live-in the moment and enjoy life, even though this disastrous catastrophe hangs in the balance, until the outcome of the vote is announced on Sunday.”

The next topic to cover is the Chinese stock market which has been a very bumpy ride over the last three weeks. Given the massive drop in the index, whipping out around $3.2 trillion in 3 weeks, IPO’s have been suspended. Why suspend IPO’s? The rational is that if a new stock comes to market, funds will have to flow from another part of the market which means selling one stock to buy a new stock. IPO’s are a great way for markets to stabilise themselves because as stock prices get over heated, private companies see the premium attached to being listed and they then enter the market. A large inflow of IPO’s results in more companies for the same amount of cash in the system which drives down valuations. This is obviously an over simplified way of looking at the market where things take time to happen but the point is that the market has its own mechanisms to bring prices back inline.

The Central bank of China has also said they will help with liquidity for brokers who need it on margin accounts and the State Sovereign Wealth fund, mutual funds and securities firms have indicated that they will all be buying stocks. The approach from the Chinese government is to shore up confidence in stocks, which will hopefully result in other people buying stocks so they don’t have to. They have said they will continue buying stocks until the index is back at the 4 500 level. By giving people a number like that, the hope is to put a floor on stock prices. Something like this will hopefully give people confidence in the future, their investments and will result in more buying. If Chinese stocks are in a bubble and the governments plan is to keep prices stable until earnings catch up (which will take years) to prices, I see this ending badly because people will get bored of a sideways market, start selling and the Government will end up owning all the stocks or prices will tank.

This may be a bigger case of kicking the can down the road. Remember that Greek GDP is around the $250 billion mark, the Chinese stock market lost around 12 times more than that in 3 weeks! The market probably pays more attention to Greece because it is a little closer to home and because the assumption is that the Chinese authorities will do what they need to do to fix the problem in the end.

Company Corner

Apple is growing it’s Apple pay network – Apply Pay is launching in the UK on July 14, leaked document claims. I think this is the future of paying for things from a convenience and security point of view. Many of you would have seen this article doing the rounds on social media – Don’t fall for the “broken credit card machine” trick. Apple Pay will make this con redundant as you will never present your card, which is where people steal your information from. My card details have been stolen before so if I could use a system like this and not take out my card to pay, I would do so every time!

There was a big announcement at 17:00 Friday evening from the big casino companies, The Proposed Restructure of Grand Parade who were selling off their casino assets has been scrapped. We will wait to see what Grand Parades does with their new plans are going forward, they may struggle to find a new buyer for the assets.

Linkfest, lap it up

Great to see countries embracing renewable energy – Kenya is building Africa’s biggest wind energy farm to generate a fifth of its power.

Pouring huge amounts of money like this into property shows a positive outlook for the future – Billions more poured into Melrose Arch development. South African commercial property still lags that of the developed world and some of our African counterparts.

Home again, home again, jiggety-jog. Our market is down around 1% today. My screen was covered with red on the open but as the day has gone on, I am starting to see some green and lighter shades of red. I think there is still a long road to walk with the Greek saga and the markets have accepted that we don’t know how it will end, so sit back and take a “let’s wait and see” approach. Naspers is the big loser today, down 4.5% which is based on the Tencent share price being down 5.5%. In days gone by Naspers would have been down more, closer to the 5.5% mark. Does this mean traders are viewing Naspers as more than just Tencent now?

Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

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