The ASX wagon is clearly hitched to the Chinese growth engine. When China slows and commodity prices fall, the ASX is sure to follow.
The Shanghai Composite Index is simply a barometer of the main show, which is Chinese real estate and infrastructure investment. Chinese stocks are again falling, with the index headed for a test of primary support at 3000. Rate rises in the US are likely to increase capital outflows from China. The PBOC’s massive foreign currency reserves act as a buffer but have already been depleted by half a trillion Dollars. Loosening the peg against the Dollar may soften the immediate impact on reserves. But a falling Yuan is likely to further encourage capital outflows.
The ASX 200 broke primary support at 5000. Reversal of 6-month Twiggs Momentum below zero signals a primary down-trend. Follow through below 4900 would confirm the decline, with long-term support at 4000*.
* Target calculation: 5000 – ( 6000 – 5000 ) = 4000