Australian Investment Blog

OverviewAfter China sent the world’s equity markets into sell-mode to welcome in 2016, locally we received the additional ‘whammy’ that Dick Smith (DSH) has, basically, gone broke.Firstly, on China, volatility is nothing new and Monday’s fall is only a blip when we stand back and look at price action over recent years - see chart 1.The Chinese market is not a "free" market, for example margin loans collateral is not marked-to-market. e.g. in our market this equates to investors being long Dick Smith using Slater and Gordon as collateral! Nevertheless, whenever China has significant market falls, and there have been a few, the authorities intervene / implement fresh measures to stop the selling and calm the market.This yoyo-style ‘swings and roundabouts’ may well continue until all unnatural market influences are removed and the market becomes free to an equivalent level of other major indices.There is no surprise that volatility in China has a significant impact on the Emerging Markets. Continued volatility may coincide with the emergence of the buying opportunities in Emerging and correlated stocks that we have been discussing recently -see chart 2.Moving onto Dick Smith and the news it has entered into voluntary liquidation, fingers of blame are already being pointed; what are auditors, Deloitte's, paid to do? Gerry Harvey summed up the issues facing Dick Smith simply and perfectly with these comments:"We've had to close a few stores that became unprofitable over the years but when 70-80% of your stores are in that position the business is broken" - A summary of Gerry Harvey's comments on Dick Smith.This a classic example of the benefits to investors of using a combination of both fundamental and technical analysis which Market Matters has always advocated.