Featured Trades: (FXI)
iShares FTSE/Xinhua China 25 Index ETF
4) The Tea Leaves for China Look Ominous. The truly significant move in the capital markets last night was the atrocious performance of the Shanghai market (FXI), which plunged 3.4%. The index is now off more than 30% in the past 14 months, and 21% this quarter alone. Why should I care? Because the Chinese stock market has been a great leading indicator for risk taking generally and global stock market performance specifically. It’s August, 2009 top presaged our own by some nine months, and sent up distress flares that equities were not the place to be during 2010. This isn’t just data mining. So many American companies generate profits by selling into China, cut costs by outsourcing manufacturing , or source products there (think Wal-Mart), that the two economies are now essentially joined at the hip. Some weak leading economic indicators did the dirty deed last night. But there has been a rising tide of concern that the People’s Bank of China’s tight money policy might not only pop the real estate bubble, but the broader economy as a whole. Investors might also be figuring out that the coming revaluation of the Yuan may be negative for the profits of the Middle Kingdom’s companies (click here for my piece). Another 500 pound weight on the market is the coming IPO for the Agricultural Bank of China, the largest in history. Read the tea leaves there, and the future looks ominous.
A Rising Tide of Concern