Traders will get some relief from the “wall of worry” this morning. The fact that China’s stock markets bounced off lows yesterday combined with the first rally for some time in oil and base metals markets will provide an improved macro setting for early trade today
The past two trading days have seen evidence of bargain hunting in resource stocks and banks. Cautious bargain hunting in mining and energy stocks this week has come despite ongoing declines in commodity markets. Buyer confidence may be further improved by last night’s rally in underlying commodities.
While markets were relieved by the intraday bounce in China’s stock market, many will remain cautious until there is some confirmation of a definite trend change in this market with prices continuing to move clearly away from yesterday’s support levels. At the end of the day, the major issue for investors is the level of growth and demand in China’s overall economy rather than the stock market itself. However, investors have seen reason to build some risk premium into valuations based on the potential for the stock market decline to impact on economy wide confidence.
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