Aussie investors watchful amid Chinese uncertainty

Taking Stock does not generally follow on from the previous article, because we like to cover as many topics as possible.

However, it is appropriate to begin with the continuing 'stimulus' saga of last week, because it was ironic that a tongue-in-cheek comment in the column came to the fore.

That indicated how irrational or desperate the world markets have become.

After detailing the world's central bank September stimulus activity, Taking Stock cheekily asked if week four would see the Chinese Central Bank come to the party.

Although we meant it whimsically, there was a chance at some time in the future that the People's Bank of China (PBOC) would follow the other three major central banks in firing up its printing presses to present a united global strategy.

So just as global stock markets were becoming somewhat 'stimulus tired' and doubts rose that solving debt problems by printing more debt was appropriate, China turned the ASX on its head by announcing that the PBOC had injected a net CNY365 billion ($56.015 billion) into its money market that week via open-market operations.

This was the biggest ever weekly injection, amid a surge in demand for cash by banks.

The PBOC said last Thursday that it had offered a total of CNY180 billion reverse repos, a short-term lending facility, during its regular open-market operation.

This caused a 50-point turnaround on the ASX 200 and demonstrated the close correlation between anything Chinese related and the Australian market and economy.

To further confirm the market's focus on China, the Australian market retreated just as quickly in the following trading session when deputy secretary-general of the Metallurgical Mines Association of China forecast a decline in Chinese steel production over the next three years.

Liu Xiaoliang told a major iron ore conference in Dalian that by 2015 China's demand for crude steel would fall to 705 million tonnes.

This represents a decline of about 2 per cent from this year, which is significant when China consumes more than 50 per cent of the world's iron ore.

So although all Australians have previously benefited from the Chinese ties and many will continue to do so, considerable uncertainty out of China lies ahead including an imminent change of leader, growth concerns and the state of the Shanghai stock market.

·If you would like to subscribe to Adam Farrall's weekly market update, contact him at Sentinel Stockbroking on 9225 0020 or email afarrall@sentinelgroup.com.au

_Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time. _