You want to know one of my biggest worries right now in the markets? China.
We are seeing degradation in the Baltic Freight Index to the point that it's tough to watch. We have seen a decline in copper. We get government numbers that aren't so hot and auto numbers that are cooling, and none of it is good news. Commodities, which are connected to China, such as iron ore and copper, have been performing extremely poorly of late; and of course China along with the U.S. are the biggest consumers of commodities.
Now, let's put it in context. This stock rally is a U.S.-led one. The emerging markets have been horrendous. Europe's coming back in fits and starts. China's been intermittent, but the market is strongest when China is in a positive part of the cycle. The only reason I endeavor to point this out is that the weakness in the stock market is pervasive enough that you have to break out the list of real concerns, and this is the top one. Of course I've been calling for a selloff in the markets for a couple of weeks now, because of profit taking and less than stellar corporate profits (and the affect/effect of the cold weather). Added to that, the price of oil, which can also be tied to China, has been at the lower end of its range over the past year.
I write all of this because I'm trying to figure out what the "markets" can be telling us. I understand the recent weakness of our markets due to the U.S. led reasons I mentioned above, but what if we are seeing economic slowdown in China....and if that is what we are going to see, and if this causes a decline in their stock market, will it have a negative impact on how our markets will act. This is merely food for thought and I'll be keeping an eye to see how markets over in Asia act over the remaining month (I like to monitor the performance of the Mathews Asian Growth and Income fund MACSX b/c it's one of the top Asian mutual funds out there). Simply stated, I don't see how we can have a continued market advance if China isn't along for the economic expansion ride.
