Steep Contraction In The China 25 Index Is A Red Flag

Oct.22.11 | About: iShares China (FXI)

For some perspective on one of the more important global stock markets, today's chart focuses on Chinese stocks and presents the current trend of the iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI). As today's chart illustrates, Chinese stocks have endured what amounts to an extremely wild ride since 2005. The FXI trended upward at an ever accelerating rate (i.e. parabolic) from 2005 to Q4 2007.

As the credit bubble began to unravel, so too did Chinese stocks, with the FXI trending downward at an ever accelerating rate from Q4 2007 to Q4 2008. Beginning in Q4 2008, the FXI surged -- gaining over 155% trough to peak. Since that post-financial crisis peak back in Q4 2010, Chinese stocks initially treaded water but more recently have entered in to a steep downward trend channel.

Considering China's increasingly significant contribution to the global economy, this recent stock market action is most definitely a red flag.

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From The Blog of HORAN Capital Advisors
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Source: Chart of the Day