The Shanghai equity market has served as an important indicator of the equity market over the last 5 years. As we all know, China is the fundamental driver of much of the commodity growth and economic growth in the global economy. In January I penned a piece titled “The tail that wags the dog. In it I said:
China led us into this recession and it’s likely that China will lead us out. And after a 70%+ decline, China’s not looking like a bad long-term bet to me….
As a leading indicator, China appeared to be bottoming and looked quite attractive. Surprisingly, U.S. markets have had a tendency to turn a blind eye to the moves in the Chinese equity markets. Nonetheless, the Shanghai market led the downturn in 2007 and once again led the recovery in late 2008 and early 2009. The U.S. equity markets lagged by several months.
Since the August peak in the Shanghai the U.S. equity markets have essentially moved sideways. Today’s chart of the day shows the uncanny technical importance of the 50 and 200 day moving average in the Shanghai market. Both have served as very important level throughout the last year. Last night’s breakdown thru the 50 day moving average could prove to be reason for near-term concern. In all likelihood, the easy money in China has been made as the post bubble churn begins:
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.