Today, the markets received a new portion of news about the trade war between the US and China. This, by the way, strengthens me in the opinion that the key players of this game are not acting rationally and are ready to further raise rates to the detriment of rationality (we spoke about this in an interview with CBonds Review 3 months ago https://t.me/sgcapital/413 and recently explained their position more https://t.me/sgcapital/465)
But I wonder how the stock market reacts to this. And it does not react very well, at least in China. The graph shows the dynamics of the Shanghai Stock Exchange Index since 1991 (absolute and relative to the S & P-500 index). The schedule is monthly. By the way, it is useful to pay attention to how well a simple 12-month average works (the period is not taken from the ceiling, but because it is 1 year) for the China / US ratio. Perhaps someone will help with the decision about when or not it is necessary to allocate a portion of the portfolio to Chinese stocks.
So, the China / US ratio has gone to historical lows, below the levels of 1994, 1999, 2005 and 2014. In absolute terms, the index does not look so bad, after all the economy has grown over the last 30 years. But even here he is testing the critical level of support for 2600-2700, and in case of breakdown, it can go to a long-term trend in the area of 2000 points. Do not be surprised if the big guys from politics do not calm down, and we’ll see this movement on the horizon for a couple of years.
Perhaps, for a certain category of investors, this, on the contrary, is an opportunity to play in an opportunist and try to catch the bottom. They have the right, if the risk management and the size of the capital allow. Personally, as a follower of the «trend», we do not want to touch Chinese stocks until in the high-end part of the chart the correlation of the indices turns around and breaks the 12-month average up.