China Edges Markets to the Brink


Holy cow! You know there’s a problem when dark clouds cover the Profit Watch HQ.

As upbeat and emotionally positive as we want to be…there’s no denying what happened in the markets earlier this week.

Investors turned red in the face as panic hit.

You may have even found it hard to get any sleep on Monday and Tuesday night.

Really, you should have expected this.

Did you sleep like a baby this week?

If so, you’re a rare breed. Because it’s back on with the US-China trade war.

Now, I don’t know about you, but I’m over this topic. It just keeps dragging on. I have one focus and that’s to make money.

I’m sure you could agree that Trump is now becoming a consistent force against this goal…

Cowardly market manipulators

In case you missed the news, let me fill you in…

The US Treasury has now openly labelled China as a currency manipulator.

Here’s a snippet from the Financial Times

“China has a long history of facilitating an undervalued currency through protracted, large-scale intervention in the foreign exchange market,” the Treasury said. “In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past.”

The currency move was considered ‘a massive Chinese retaliation’.

That’s from Chris Krueger. He’s from the investment banking firm Cowen. Krueger went onto suggest that ‘on a scale of 1-10, it’s an 11’.

I believe the Chinese will do whatever they can to win. And now, it looks like a lower belt blow is going to help with that.

China also announced a suspension on purchasing American agricultural products.

Of course, Trump took to Twitter to cry about it.

I think someone should remind him that Twitter is banned in China…

You now understand what’s occurred and perhaps now you want to know what to do.

We can only speak for ourselves here at PW, really. Callum has shelled you for most of 2019 with one phrase…

Be cautiously bullish

I think this phrase perfectly summarises the year, and will continue to do so until 2020…

It’s an important reminder because the bears are back in town. Oh yes, and in a big way too.

Here’s what I mean…

Nomura, an Asian financial services firm, has gone public with a call that a ‘Lehman-like’ selloff is about to occur.

And according to Nomura, we only have 30 days left to prepare for it.

Talk about a sudden turn of events!

There’s a particular chart I’ve shown you before. I want to draw your attention back to that chart, published in an update on 10 June. (You can read the full update here.)

I provided you with a glimpse of how one year typically looks in Australian stocks. We do this by breaking the year into months.

If you missed that the first time, let me introduce you to what I call Mr Seasonality.

Take a quick look below.

Source: Optuma

As you can see, August historically hasn’t been much fun on the ASX. You could almost call the current market weakness this week typical — except for the news around it.

It’s one way to put the bearish, Lehman-like calls in context.

Look, we can never rule anything out. But I don’t think that we are primed for a crash like that. Yet.

Remembering that the GFC saw asset values fall by 50%… That seems like an extreme forecast today.

I don’t say any of this lightly. But a lot of stocks bounced later in the week as the panic subsided.

That suggests there’s plenty of buying pressure ready to step in once values come down a bit, as they did.

And by the way, gold stocks are going nuts right now. One of Callum’s small-cap recommendations, a gold explorer, rose 18% on Wednesday.

It’s still coasting up as I write.

You see, there is always an opportunity available. Take a look at how to make these ideas work for you here.

Until next time,

Jonathan Evans Signature

Jonathan Evans,
Analyst, Profit Watch