The ASX 200 opened lower this morning following Sunday’s crucial referendum in Greece, which saw the Greek people reject austerity. Eurozone representatives have reacted negatively to the outcome of the referendum while Prime Minister and Syriza leader Alexis Tsipras celebrates his victory. Uncertainty appears to be the only certainty as Greece and Europe take a leap in the unknown.
The local Australian share market took a dive this morning falling more than 1%. The ASX 200 benchmark index hit a low of 5429 points shortly after open, which is 100 points or 1.8% below Friday’s closing price. Last week the ASX 200 experienced heavy volatility, but somewhat managed to finish the week flat. As of 12:30 pm the market is 1.3% lower dragged down by all sectors. Energy is down more than 2.3% as oil prices fell significantly on Friday. Financials is trading 1.3% lower while Materials dropped 1.6% (as of 12:30pm).
No economic news are expected for Australia or any of the other major Asian markets.
However, it’s not all about Greece as China’s Central Bank has taken action over the weekend in response to the tumbling stock market. The People's Bank of China will inject capital indirectly in the stock market to enable brokerage and fund managers to borrow and purchase large amount of stocks. On top of that capital raisings and IPO are being put on halt. The China Securities Regulator Commission said in a statement "there will be new IPOs in the near term." The Shanghai Composite Index declined more than 30% in the past few weeks, which is considered to be the worst fall in the last two decades. Chinese officials fear that a slide in the stock market could spread over to other parts of the world’s second largest economy or dampen the general mood in the country. The Shanghai Composite gained more than 3% in the opening hours of trading.
What should investors do?
The outlook for the upcoming weeks is challenging with a high probability of ongoing volatility due to worries about Greece, low commodity prices or the Chinese stock market. The ASX is currently travelling in a short-term downtrend (see daily graph below) but remains within its long-term ascending channel. The basics of investing have not changed as it remains important to follow a committed strategy with a long-term outlook. Do not get caught up with daily volatility and invest in high quality businesses. At the same time you can use a few simple trading strategies to hedge and benefit from a falling share market.
Author: Simon Herrmann
Jul 06, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.