Here’s something to think about. As bad as the blowback from the U.S. credit fiasco has been for Australian shares, we’ve had a bulletproof shield: Chinese growth. World financial markets may be closely intertwined. But at the end of the day, investors here know that as long as China keeps on chugging out 10% GDP growth, this resource rich economy can surf in its wake on good times.
True financial panics ensue when markets are sideswiped by something unexpected. In Australia’s case, we want to suggest that the local economy could survive the bear market in credit, only to be mauled by an unexpected event in China, which has so far cooperated with everyone’s rosy commodity demand forecasts.
“China on Wednesday issued an ‘urgent’ call for the coal industry, electricity providers and government agencies to ensure adequate coal supplies as a nationwide power crisis loomed,” the AFP reports. According to government reports, China has about eight days of coal left. Coal stockpiles are at just 17.7 million tonne, down 40% from last year.
You can’t run the world’s manufacturing workshop without energy. China is a net importer of coal already (most from Indonesia and Queensland.) It’s peak demand season, with thermal coal being used to generate electricity for industrial and household demand.
Chinese coal stockpiles will probably be built back up, if the ports on the Eastern Coast of Australia can ever get their act together. But you see how little margin for error China’s economy currently has. It too has been running at full tilt for years. A slowdown, a recession, some nasty banking surprise, or just the booms and busts that go with market cycles are bound to occur sooner or later.
Australian investors, fully tuned into to the American market, had better not take China’s growth for granted. If that support is kicked out from the economy, share prices might fall a lot further than they did earlier this week.
The Daily Reckoning Australia