Selling slows as commodities warn

Asia Pacific share markets will trade under pressure again today following overnight falls in US and European shares, and an ongoing rout in industrial commodities. Investors are likely to turn to Shanghai for a lead, after yesterdays’ 8.6% sell off sparked the current global weakness.

The share markets in China are largely disconnected from the economy, driven by government policy and insulated from international investors. Much of the recent selling relates to rule changes around share financing for investors. A leap in 30 day index volatility to 65% suggests uncertainty around the ongoing impact of reduced margin capabilities, although analysts estimate most of the rule change related selling is at least three quarters complete. This means a significant rally today is as likely as further selling.

Strong reporting from the US is underpinning a more positive view, and gives further pause to the bears. The Australian share market was one of the few to advance in the last twenty four hours, possibly due to a weaker AUD, and low expectations for the reporting season that kicks off this week may mean sellers are scarce. However, low volumes point to a lack of commitment, and further falls in oil and copper may see materials stocks reverse yesterday’s gains.