MARKETS SPECTATOR: Chinese sinker

Got an itch to buy stocks? You may have few friends that will join you.

The S&P/ASX200 Index has declined 8.9 per cent from its high this year on May 14 of 5,220.987. Few analysts expect any recovery to those heights.

That the Chinese economy may be cracking is adding to a global and local economic uncertainty that could drive stocks lower in every sector.

Gold and iron ore miners may continue to be under selling pressure because spot or futures prices for their commodities are declining. Banks have yet to report any serious deterioration in their balance sheets but have been affected by profit taking, especially from offshore investors. Retail stocks and department store shares have been affected by the general lack of business and consumer confidence. 

Gold miners such as Newcrest Mining, Alacer Gold and St Barbara may come under renewed selling pressure after gold futures for August delivery fell to their lowest level since May 23. There is renewed speculation central banks will curb monetary stimulus, lowering demand for bullion as a store of value.

Shares in Newcrest, Australia’s biggest gold producer, have dropped 21 per cent since June 4. On Friday it fell as much as 15 per cent after it said it may write down as much as $6 billion on the value of its deposits following the fall in the gold price. The spot price for gold has dropped 18 per cent this year, according to Bloomberg data, to $US1,378.20 a troy ounce.

Alacer Gold’s stock has dropped 4.2 per cent since June 7. St Barbara shares have slid 9.1 per cent since June 4.  

The prospects for non-gold miners such as BHP and Rio Tinto are hardly rosy.

The spot price for iron ore imported through the northeast Chinese port city of Tianjin was unchanged for the second consecutive day at $US110.90 a tonne, according to Bloomberg data. The current iron ore spot price is almost at the long-term floor for the commodity of $US110 a tonne, according to Gindalbie Metals managing director Tim Netscher. But analysts including those at Credit Suisse and UBS forecast the iron ore spot price to fall to $US80 a tonne this year.

Rio’s stock has slumped 26 per cent from its high this year on February 14 of $72.07. Moreover, the investment strategy advised by some including Goldman Sachs that it is a good time to invest in miners such as BHP has yet to pay off. Since Goldman Sachs analyst Tim Toohey made the call on May 17, BHP shares have declined 3.8 per cent.

Toohey had recommended investors sell banks and they have performed even worse than BHP Billiton since May 17. ANZ, Commonwealth Bank and Westpac shares have fallen 11 per cent while National Australia Bank’s stock is down 14 per cent since May 17.

Even Woolworths and Wesfarmers, who own the two dominant grocery store chains Woolworths and Coles respectively, have been hardly immune from the market gloom. Their respective stock price performance has not been helped by the appalling lack of business confidence. Australian business confidence remains at negative 1, below a long-run average of plus 5, according to Perpetual’s Sherwood.

Woolworths shares have fallen 13 per cent from their high this year on April 24 of $36.81. Wesfarmers’ stock has dropped 14 per cent from its high this year on May 16 of $44.20.

Shares in department store operators David Jones and Myer have also been affected by a depressed consumer. David Jones shares have plunged 21 per cent from a high this year on April 3 of $3.11. Myer’s stock has dropped even more, 29 per cent from a high this year on April 29 of $3.21.

The S&P/ASX200 Index has declined 8.9 per cent from its high this year on May 14 of 5220.987.