ASX likely to pull back to 5300 pts

The ASX market is following the global trend and is experiencing a considerable global pull-back. The rationale for this pull-back is:

1. Rising interest rates to crimp inflation

2. Prospect of softer commodity prices

3. Reassessment of risk premiums - demand for higher yields to offset lack of asset growth and

On the positive side, we can expect the following:

1. Strong Chinese investment in Australian mining companies. The Chinese will be passive investors, not operators, so these will be corporate deals. Expect them to buy convertible notes and equity. I dont see corporate takeovers. I see them making deals with project sponsors. But these deals will help these stocks, so this is the market that will yield opportunites in future.

2. Tight metal markets

3. Weaker AUD and Chinese investment will support capital inflows, as USD-based commodity export revenues will help.

4. Australia has pretty full employment so the impact of any slump looks less worrisome. But then markets always fall from highs.

5. Government debt is very low so the goverment has the capacity to spend on ports, railways, dams, etc.

6. Prospect of higher export volumes to offset price erosion in the long term

7. Mineral markets are pretty tight so commodity prices are likely to remain pretty bouyant considering

8. Agricultural exports will eventually recover - so thats an added source of export revenues

All this is reason to think that the ASX will not sink too far. There will be pain at the lower end of the property market. eg. Debt liquidations, but matters are not too bad for the Australian market. But they will be oversold because the US market is featuring as the issue of the day.

So I am expecting a pull back in the ASX to 5300 pts, and that the broader retail, banking, markets will be hurt more than mining stocks, Woolworths, etc.