Decoupling? What Decoupling?
Jul 11th, 2008 | By Doug Casey | Category: International InvestingThe Decoupling Myth Despite all the talk about China’s economy “decoupling” from a U.S.-led recession, the numbers tell a different story. A simple comparison of the biggest companies in China with U.S. blue chip stocks proves that the U.S. and Chinese economies are moving in a tightly correlated pattern, as Bud Conrad explains in today’s chart.
It has become fashionable for commentators to sound like they know what they are talking about by saying that the economy of China and the U.S. are going to “decouple.” They ramble on about China developing its own consumer demand and not needing the U.S. market for their exports. Even if the U.S. economy goes into serious recession, they say, China – and other fast-developing nations – will continue to prosper decoupled from U.S. dominance.
The data, however, tell a different story. Since November 2007, the iShares FTSE/Xinhua China 25 Index (NYSE: FXI) measuring the 25 biggest Chinese companies has matched the movement of the S&P 500 with eerie similarity. The Chinese majors (their ‘red chip’ stocks, if you will) have, not surprisingly, been more volatile, their highs higher and their lows lower; however, the chart above shows how China’s industry has moved in a tightly synchronized pattern with an ETF that has two times leverage to the S&P 500, the ProShares Ultra S&P500; NYSE (SSO).
In other words, the Chinese economy as measured by its biggest companies has moved in tandem with U.S. economy and its blue chip stalwarts. The only difference is that China’s ups and downs have been more extreme.
This is why we choose to remain focused on facts, instead of listening to pundits. As Bud Conrad says, data trumps blather.
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Source: Decoupling? What Decoupling?
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Doug Casey is a contrarian investor, sought-after public speaker and author of several books. His work "Crisis Investing" held the position of # 1 bestseller on the New York Times list for 26 consecutive weeks. Doug's unusual views on the economy - and just about everything else - have gained a huge following in the investment community, and it certainly helps that his stock recommendations of undervalued junior exploration companies have made his subscribers millions. Now in its 27th year, Doug's monthly newsletter, the International Speculator, is one of the most established and esteemed publications on gold, silver and other natural resource investments. Together with the Casey Energy Speculator, it covers a broad range of carefully selected stocks with the very real potential of double- and triple-digit returns within 12 to 24 months.