China and India: Canaries in the Coal Mine?

Here are two bits of business news that investors should factor into economic recovery projections.

Hindustan Times (September 2, 200)
Exports dip again, down 28.4% in July

India’s exports contracted for the 10th successive month, plunging by 28.4 per cent in July as order books continued to dry out from two of the biggest growth regions—the US and the European Union (EU)—which are still in the throes of a recession, reports

China Daily (August 31, 2009)
Industrial enterprises in 22 Chinese provinces, regions and municipalities generated 1.11 trillion yuan ($163 billion) of profit in the first seven months, down 17.3 percent from the same period last year, according to the latest official figures.

The decline is 3.8 percentage points lower than that in the first six months, the National Bureau of Statistics (NBS) said in a statement Friday.

Daily charts shown below use 1 month (21 day), 1 quarter (63 day), 6 month (126 day) and 1 year (252 day) simple moving averages, plus 1 month (21 day) price channels.

click images to enlarge

China (FXI)

India (IFN)

Keep in mind that China and India constitute about 1/3 of the market-cap of the emerging market index.

Emerging Markets (VWO)

US (SPY)

Disclosure: We do not currently own FXI or IFN, but own VWO and SPY.

Comments

[basehitz:]

To define the last market bottom, a 1-year chart of SPY vs EEM shows the following:
• EEM bottomed last fall, SPY had further to go.
• March EEM low was HIGHER than it’s previous low. SPY made a new low.
• EEM advance in March slightly before SPY.

If we are now repeating the opposite of above, the following should set the stage:
• EEM hit a rally high Aug 1,but SPY had further to go.
• August EEM subsequent high was LOWER than previous high.
• SPY high on Aug 1 was beat by subsequent high last week. (i.e., EEM started down first)

However, IMO the jury is still out. Nevertheless the above 2 sequences – so far – repeat the pattern where EEM leads and SPY follows. I am currently using EEM UST USD VXX and USO as indications of where SPY may be headed next on my live trading screen.

Everything is so highly correlated, I’m waiting for more clues on the bigger picture before trading, except very short term stuff.

Sep 03 08:42 AM

[Dave Wrixon:]

Yes, it never seems to amaze me that the major exporters are down about 20% when their main markets profess to be coming out of recession. Do you ever get the feeling something doesn't quite add up?

Sep 06 05:22 AM

[whidbey:]

The emerging markets are leading indicators and I agree with the above comments that their current down turns are ominous.

What we have yet to recognize in the US is that our domestic demand, except possibly for oil and some metals, is going to fall for at least another six months (and recover very slowly). By then the emerging markets will be in serious straits. I think this points to deflation, worldwide. We need to be very careful about incurring further domestic debt for obvious reasons. Deflations are contagious.

Sep 07 08:04 PM

[lookingsouth:]

Not the overstate the obvious, but we (the west) were the worlds primary market for goods and we're broke Contraction in the BRIC is inevitable .... they cannot sustain export levels without European and US consumption rising..and our consumption is falling and continues to fall. The BRIC nations do not have sufficently broad dispersion of disposable income to rely on rising rates of consumption within thier borders. People think we have too much wealth concentrated in the hands of the rich?...Check the demographics in Brazil or China...

Sep 08 12:09 AM

[punk_ash:]

I am writing from India and no one cares about exports. There is so much internal consumption like there is no tomorrow.

Oct 02 04:40 PM