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China on the tear and Noble Update

CMC Markets

The Chinese stock markets caught fire around midday yesterday, baffling many foreign investors who were looking for the cause of this huge move. There was certainly a feeling of euphoria in the way the Chinese indices were bided up. Perhaps this was because the Chinese central bank unexpectedly used open-market operations to add cash to the financial system by auctioning only RMB38 billion, out of an expected RMB180 billion in the maturity rollover. Alternatively, it may have been down to unconfirmed reports of the Central Bank’s approval of further RRR cuts by five Chinese city and rural banks, with 50bps cut to 16.5% for smaller, rural banks. Or maybe it was simply due to the fact that yesterday, being the eighth day of this new Year of the Goat, is the most auspicious day for any practicing, full–blooded, Feng Shui following trader to begin his trading year. In any case, the China A50 closed up by more than 2.5%. A look at the charts suggests that this phase of consolidation of the A50 - of between 10,000 to 11,000 - during the period leading up to the Chinese New Year Holidays, is perhaps nearing its end, and a resumption of the upward momentum may continue here. If the A50 breaks this level of around 11,000 on the upside, we could see it test its January high of around 12,000 next. Conversely, should this support level fail to hold, we may see the index supported only at around the 10 000 level. Yesterday’s mid-day spike on the China A50- Mar 2015 contracts: Noble Update Noble Group (Singapore listed) reported after the close of trading yesterday. They reported a Q4 loss of US$240 million versus a profit of US$117million in the corresponding period in 2013. The numbers came in below market expectations, almost entirely due to write-downs and provision amounting to US$438million. Significantly, a large portion (US$200million) of this write-off was due to an impairment taken on Yancoal, one of the key spotlights of the glaring Iceberg reports. Noble also took concrete steps to lower their gearing in 2014, retiring bank loans amounting to almost US$1.7billion. Gearing for the company declined from almost 50% in 2013 to below 40% at the end of 2014. This was achieved largely from proceeds they received from their earlier sale of Noble Agri Limited. It remains to be seen whether the initial, positive steps taken in Noble’s report yesterday will settle the market’s nerves over the recent volatility of the stock. Only the market, in its most efficient state, can determine the range that the stock will settle at. However before that stage is reached, most ‘natural’ buyers will adopt a wait-and-see attitude, at least until details of Iceberg’s third report on Noble is released. Based on the charts above, key support for Noble is at $1.03 and then $0.96. Resistance remains around the $1.18 level.
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