MacroScope

China leading other markets?

It’s becoming increasingly common to blame Chinese stocks for recent volatility in global markets.

In some places, numbers do back up why China and other markets are increasingly moving in tandem.

According to Brown Brothers Harriman, the correlation based on percentage change between Shanghai stocks and the S&P 500 index has risen to 18 percent in the last three months. This compares with year-to-date correlation of 9 percent and 4.5 percent in the past two years.

The correlation between the front month copper futures and the Shanghai composite has risen to above 30 percent in the past three months from 27.4 percent since January and 16.5 percent over the past two years.

Over the two past years, the correlation between the euro/dollar exchange rate and the Shanghai Composite is 12 percent, same as the year to date. In the most recent 3 months the correlation has risen to just above 21 percent, its highest since Q2 2007. The highest over the past decade was recorded in Aug 2005 with a correlation of about 40 percent.

from Changing China:

Can China save the world?

 

China has long said that its biggest contribution to a world racked by financial turmoil would be to ensure that its own economy grows strongly, implying that a rising Chinese tide will lift all boats. The latest data show that Beijing has delivered on one part of the bargain; its economy, the toast of the world over the past five years, is once again ahead, far ahead, of the pack. 

 

Many investors and companies are confident that the second part of the bargain will follow – that China's recovery will be just the cure for markets still woozy from the financial battering. Such faith is not yet justified.

 

To be sure, China has already delivered a cortisone injection to some commodities, notably copper, the price of which has risen more than 40 percent this year. Strong stock markets, from Japan to Canada, since March are in part a play on positive sentiment spilling over from the Chinese rally that began in January. China also stands as the one growth market for global auto makers.