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CHART OF THE DAY: THE HANG SENG/BALTIC DRY DIVERGENCE

The Chinese stock market and the Baltic Dry Index have an extraordinarily high correlation to one another.  In recent weeks, however, we’ve seen a sharp divergence.   The correlation is primarily due to China’s large export component.  Is the Baltic Dry Index forecasting a slow-down in global shipping and thus a slow-down in the Chinese economy?  More importantly, is the stock market (in the U.S. and in China) ignoring this potential warning sign?  That has yet to be seen, but the convergence of these two indices is likely in the coming months and that either means a surge in BDI or a collapse in HK….Plan accordingly.

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