New Lows YTD in Chinese Stocks & Highs in Latin America Stocks/Bonds
Last night the China Shanghai CSI 300 index fell a bit more than 1.6%, taking out February lows and setting a new YTD low for the index. This is important since the global equity markets have a very high correlation to Chinese stocks. In the chart below, I compare our KLSU Americas Index (top 85% of developed market cap, USD) to the China CSI 300 Index (in USD). With a correlation in excess of 80%, this suggests that Chinese stocks explain a little more than two-thirds of the movement in developed Americas stocks.
The stats are similar if we compare Chinese stocks to developed Europe and Asia. Developed Asia is already at YTD lows, so this move in Chinese stocks may confirm a downside breakout.
Turning to the emerging markets, there are a couple interesting divergences. In the chart below, I show our KLSU EM EMEA Index (top 85% of market cap, in USD) compared to Chinese stocks. While the correlation is bit lower, the trend seems to be the same, with stocks breaking down.