I hope everyone is appreciating their freedoms today in honor of Dr King. One good way to honor him is to educate yourself about the liberties that you have as a citizen of the United States of America (and hope you’re paying attention to the decrease in rights you are experiencing – not being aware of this is a waste of Dr. King’s efforts).
Market lessons from reactions to the markets in China
In the meantime, all we needed was a market holiday in the US coupled with a solid down day in Chinese stocks to set up an exciting week (wow had to click FOUR times on Bloomberg to see the Chinese stock indices – Shanghai and Shenzhen!). With Chinese authorities trying to curb “inflation” in their country, they are increasing requirements on real estate purchases and raising rates. This has spooked investors in China who feel this will slow the economy. This will likely hit industrial metals, such as copper and nickel, a bit tomorrow. Of course, efforts by governments to control inflation is also negative for precious metals.
So tomorrow we may see a dip in the following investments:
- emerging markets stocks
- US international companies
- commodities – especially industrial metals (and maybe energy)
- precious metals
I’m curious what happens and whether the Pollyanna crowd here shrugs it off and keeps buying certain stocks or if this gives us the correction that we need. We can learn from Tuesday market action about the psychology and outlook of American investment firms. Right now (3:45PM on Monday), China appears to be the only market in Asia taking such a big hit (over 3%) with some markets, including Pakistan, up. So first off, the Chinese action does not appear to be stoking worries in other places.
If you’re curious about how the global economy is interplaying, this is a great way to learn some lessons on how everything is connected. Keep an eye on the Chinese market going forward for the next 2-4 weeks. See if commodity prices begin to fall and see if other markets fall in sympathy (i.e. levels of correlation in the markets)
Then we want to see if selling begets selling and we have a real correction (falling more than 10% in my opinion) or if money pours in to buy. We can learn about how dedicated investors are in this market by how much a 10% move spurs further losses or a turnaround.
Let’s keep our eye out for repercussions and reverberations (or the lack thereof) and watch what happens!