Chinese central bank eases again, FTSE 100 outperforms

Whether it be their own waning economy or the Greek crisis knocking their domestic stock market, the People’s Bank of China, has again been compelled to provide stimulus. The central bank injected CNY 50 billion into the market last night leading to an over 10% rally in the Shanghai Composite. The injection of capital comes a couple of days after the Chinese central bank cut rates by 0.25% to 4.85% The Chinese authorities have been blowing hot and cold and inciting market volatility as they repeatedly caution on bubbles only to ease if the market falls. Volatility in Chinese stocks is now at its highest level since 2007. “There is still too much uncertainty in the markets and investors would be watching developments in Greece and China very carefully before jumping in,” said Karine Hirn, of Swedish group East Capital. As with yesterday’s trade following the Chinese central bank cut interest rates over the weekend, the FTSE 100 outperformed its European peers due to the high weighting towards commodity stocks such as Rio Tinto (LON:RIO) and Glencore (LON:GLEN). The prospect of further Chinese easing will increase investors perception of a higher demand for commodities going forward, a potential upside catalyst for mining companies. The FTSE 100 trades down 1.16% and The DAX down 1.53%  

Merkel and Hollande give up on Greece

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German Chancellor Angela Merkel and French President Francois Hollande appear to have reached their limits with Greece, after telling Tsipras there will be no more concessions. Merkel and Hollande had previously championed keeping Greece in the euro, continuing negotiations although it appeared that a deal looked impossible. Now, however, it seems they have reached the end of their tether, offering no more leeway with the deal. “If the euro fails, Europe will fail,” Merkel said in a speech in Berlin. “That’s why we have to fight for these principles. We could maybe set them aside in the short term. We could maybe say we’ll just give in. But I say: in the medium and long term, we will suffer damage that way.” Stock markets have continued to slide globally as the talks have heated up over the last few days, with the FTSE down 2% this morning and The Stoxx Europe 600 Index sliding 2.5 percent by 6:57 a.m. in New York. The Greek people woke up this morning to find that banks were closed and capital controls were in place preventing the withdrawal of anything over 60 euros. It appears the ultimate outcome for Greece will depend on the result of the referendum, due to be held on Sunday.

What do you do when you can’t make a decision? Get someone else to make it for you, of course

As queues form outside cashpoints and the Greek public start to panic, Alexis Tsipras has finally made a decision that might bring an end to the last few weeks of drama; he’s not going to decide. Instead, he has called a national referendum on whether or not Greece should accept the deal offered by creditors. Whilst Tsipras is trying to market this as democracy at its finest – a ‘heroic leader’ giving his people the final say – it appears to the rest of the world as little more than another move in a game that Tsipras has learnt to play well. At best, it’s a thinly veiled attempt to shrug off all responsibility for a decision that will have enormous consequences; at worst, a last ditch effort to squirm out of doing his job where, unfortunately, making difficult decisions on behalf of the country is pretty much part and parcel. Many of Greece’s creditors doubt Tsipras’s commitment to austerity even if the deal is accepted, and holding a referendum that typically costs millions of pounds will do nothing to dispel the fears of his irresponsibility. However, cost aside, calling a referendum on such a complicated matter, with such important consequences, still seems careless to say the least. Clearly, there is not enough time for information to be circulated, and both sides to form a coherent argument – because of this, many Greeks answer is likely to be based on Tsipras’ government’s propaganda and a nationalistic mistrust of the EU officials that are holding their country to ransom. There is, to be poetic, a dangerous likelihood of Greeks voting with their hearts and not their heads. Unsurprisingly, the government seem to be confident about their chances; Deputy Social Security Minister Dimitris Stratoulis told reporters that “on 5 July Greeks will have the opportunity to say a resounding ‘no’ to their [the EU] brazen demands. And that will arm the government with a new determination to apply its programme. I am optimistic, very optimist”. However, not everyone is so sure. The Economist Intelligence Unit gave a 60% probability that voters would not back the government and reject the bailout; in reality there is unlikely to be a clear winner and there is already considerable division over which way the vote will go. Kappa Research has published a poll conducted today for “To ima” newspaper; in response, 47.2% said they agreed with the deal proposed by the creditors, 33.0% said No, 18.4% were undecided and 0.8% didn’t know or wouldn’t answer. Ironically, the result may not matter at all. On Tuesday, the government’s current bailout expires and as far as the Eurogroup is concerned, Greece can’t just choose to extend it at a week later; Greece will be in default as of tomorrow. This makes the move by Tsipras look more like a distraction, a cunning attempt to detract from the real issue in hand; one which, given Europe’s desire to come to an arrangement, just might work. In reality, there is no easy way out of this situation and should the referendum go ahead, the Greek people will face a difficult choice; a choice that would have been far better made weeks ago, by the people democratically elected to make the decision.

Trafigura sells mining stake to Abu Dhabi

Trafigura has entered into a joint venture with Adu Dhabi’s state investment fund. Trafigura has sold stakes in a number of Spanish copper and zinc mines in an effort to raise money as commodities trade near multi year lows. Adu Dhabi set up it’s investment fund known as Mubadala to help provide diversity to their economy in 2002. “Investing in Matsa is a key step in growing and diversifying our existing metals and mining portfolio,” said Ahmed Yahia Al Idrissi, CEO of Mubadala. Trafigura’s Mubadala deal will split the mining assets 50:50, sources say the deal has valued the asset at $1.4 billion. The announcement comes after Traifgura announced record profits, trading in oil in the first half was boosted by higher volatility and helped net income rise to $645 million.

Greece’s capital controls: what you need to know

Greek Prime Minister Alexis Tsipras has announced that banks will close and capital controls will be imposed until the 7th July. Essentially, their aim is to prevent money leaving the country; capital controls mean that the government is able to restrict the amount that banks can allow people to withdraw, and transfer overseas. In brief, the controls are: – There will be a bank holiday until Tuesday 7th July, after a national referendum on the deal. – From midday June 29, ATMs will operate with a daily cash withdrawal limit of 60 euros per card, which is equivalent to 1,800 euros a month – Electronic transactions within the country won’t be affected. All transactions with credit or debit cards and other electronic forms (web banking, phone banking) can be conducted as normal – Any urgent transfers overseas – for medical reasons, for example, or to students studying abroad – will be dealt with by a special Committee to Approve Bank Transactions. This has been established at the State General Accounting Office in cooperation with the Finance Ministry, the Bank of Greece, the Union of Greek Banks and the Capital Markets Commission. Tourists will largely be unaffected by the controls, and will be able to withdraw unlimited funds from ATMs (subject to cash availability); essentially, the money is coming out of their national bank and will allow them to contribute to the economy, so there is no need to impose restrictions. All limits to prevent the free movement of money, such as those imposed by Greece, go against the very essence of the EU treaties. The controls aren’t illegal – the EU’s Financial Services Commission said in a statement that “in the current circumstances, the stability of the financial and banking system in Greece constitutes a matter of overriding public interest and public policy” – however, it is assumed that they would be removed as soon as is practicable. However, the history of capital control use has shown that they rarely work they way they are supposed to. Cyprus is the only other EU country to have imposed capital controls, which were put into use in 2013 after a banking crisis and a subsequent bailout negotiations with the IMF and the EU. There, the limits were much less strict; the withdrawal limit was 300 euros, and tranfers abroad were allowed up to 5000 euros a month. Gabriel Sterne, the head of global macro research at Oxford Economics, told Bloomberg: “The key point is that Cyprus’s were part of a cruel solution, while Greece’s would be part of a failure to agree on any sensible solution”. Capital controls “would solve nothing,” said Cypriot economist Athanasios Orphanides. “European governments have to make up their minds. Either they force Greece out of the euro or they lighten the debt burden the government faces to help the country stay in the euro.” Outside the EU, in Argentina froze bank deposits and banned overseas transfers, moves that led to an eruption of protests and ended in the death of 27 people. However, Iceland recently imposed capital controls and they kickstarted the economy, stabilizing the krona and, according to the IMF, “giving the nation the breathing room it needed the to get back on track.”    

Fidelity China Special Situations suffers heavy losses

As China enters a bear market, Fidelity China Special Situations (LON:FCSS) has fallen in unison, now down over 20% from intraday highs seen in late May. The Investment Trust that counts Tencent Holdings, Hutchinson China Meditech and China Pacific Insurance among its top ten holdings, enjoyed strong gains earlier this year after spending much of its time since the IPO underwater. Initially set up by Anthony Bolton, the fund set about focusing on the Chinese consumer, an investment theme that didn’t catch on for several years after the start of trading. Anthony Bolton handed the reins to Dale Nicholls earlier this year who say’s “From my ten years of investing in China, I struggle to think of a better time to find opportunities.” This will be of little comfort to investors who have recently purchased the fund. However his predecessor offers a rational stance on any volatility observed in Chinese stocks. “Investment is an odds-game. You are trying to make more good decisions than bad decisions, but you will make more bad decisions. No one can do well all the time, everyone has difficult patches” said Bolton in an interview with Share Radio. It appears the difficult patches have returned, the question is, for how long?

China enters bear market

China stocks have entered a bear market despite effort from authorities to support the economy. Defined as a drop of 20%, the bear market in Chinese stocks came even after the central bank slashed interest rates in an effort to slow the decline seen last week. At their lowest point the, the leading 300 stocks listed in Shanghai and Shenzhen were down as much as 7% in Monday’s session. Much of the declines can be attributed to the Greek crisis but investors will be unnerved as the plunge came after Chinese central bank easing, a typically bullish move for equities. The People’s Bank of China cuts interest rates by 0.25% to 4.85% on Saturda. Chinese stock markets have rallied sharply over the past few months as a record number of trading accounts were opened by Chinese individuals and margin trading levels soared, stoking fears of a bubble. The recent drop in shares has some investors believing Chinese shares are likely to see further downside in the coming months. “With this sort of slump, are we still in a bull market? Of course not,” said Lu Yahu, a Chinese stock trader to a Reuters reporter. Regulators will be concerned with the recent declines as they are running out of available tools to boost the economy and whilst preventing a bubble and eventual crash in asset prices. “This could prove to be a difficult balancing act; and, ultimately, to shore up investors’ confidence, earnings growth needs to come through and the hefty valuations for small-cap growth stocks have to come down,” HSBC analysts wrote in a note.

Rio Tinto announces Mongolian investment after withdrawing from Zimbabwe

After announcing plans to sell its stakes in mines in Zimbabwe, Rio Tinto confirmed that it has pledged to invest at least $250 million into the Oyu Tolgoi mine in Mongolia. On Friday, the world’s second-largest mining company announced that it would be stopping operations in Zimbabwe and selling its 78 percent stake in the Murowa diamond mine to its former local unit, RioZim Ltd. The mine was valued at $279 million by Deutsche Bank AG in 2013. In a statement by the Mongolian Prime Minister, it emerged that Rio Tinto has pledged to invest in the construction of the underground section of the massive Oyu Tolgoi copper and gold mine in Mongolia this year. The development of the mine has long been stalled, but this announcement marks progress for the project that is expected to boost Mongolia’s economy by a third when it reaches full capacity in 2021. Operated by Rio Tinto, is expected to produce an average of 430,000 tonnes of copper and 425,000 ounces of gold annually, but still needs an additional $4 billion finance to go ahead.

Armadale Capital up 36% after news of possible acquisition

Investment company Armadale Capital (LSE:ACP) was up 36.5% this morning, after news of a proposed acquisition by investee company, Mine Restoration Investment. MRI announced that it has entered into a cooperative agreement with Armadale to acquire up to 39.2% interest in Iron Mineral Beneficiation Services Proprietary Limited. Armadale’c current investment in MRI is £0.91 million. In a statement on their website, the directors said that “the Company has been actively looking to realise its investment in MRI and the Directors believe this proposed acquisition will facilitate this process, as well as underpinning the value of its shareholding.” Armadale Capital Plc is focused on investing in and developing a portfolio of investments, targeting the natural resources sector in Africa.

Nova Resources down 54% after final year results

Investment company Nova Resources was on of the biggest movers on the AIM market this morning, falling 54.5% after publishing its audited results for 2014. The company reported a loss for the year of £2,922,790, compared to £477,699 in 2013. The basic loss per share was 0.82p. Despite these large losses, the report stated that “the Company has adequate resources and loans from long term investors to continue in operational existence for the foreseeable future”. Nova Resources are an investment company, with a policy focusing on building up businesses that are involved in the energy, infrastructure, technology and manufacturing industries, as well as the natural resources sector.