Focus On China, Not Europe
Cam Hui | May 28, 2012 04:21AM ET
While everyone is focused and worried about the news flow from Europe, I am less concerned about the prospects for Greece and the eurozone. As I wrote in my last post (see this analysis shows a a tight correlation between Macau gaming revenues and Chinese growth - and gaming revenues are falling.
Next door in Hong Kong, the Hang Seng Index is not behaving quite as well as the Shanghai Composite. The index rallied in February to fill the downside gap that occurred in August 2011, but the rally couldn't overcome resistance. The index has now violated an important support zone and weakening rapidly.
Further north from Hong Kong, South Korea is an economy that is highly sensitive to global economic cycle. In particular, the South Koreans export a lot of capital equipment and other goods to China. That country's stock market isn't behaving well either. In fact, it's cratering.
China has been an enormous consumer of commodities. Commodity prices have also been weakening as the CRB Index is in a downtrend and has violated an important support level.
Australia is not only a major commodity exporter, it is highly sensitive to Chinese commodity demand because of its geography. The AUD/USD exchange rate is falling rapidly.
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Just to show how bad things are, the Canadian economy is similar in characteristic to Australia's. Both are industrialized countries that are large commodity exporters. The only difference is that Australia is more levered to China, whereas Canada is more sensitive to US growth. Take a look at the AUD/CAD cross rate as a measure of the forward expectations between the level of change in Chinese and American growth.
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