Is It Time For The Next China Growth Scare?

Includes: FXI, SPY
by: Paulo Santos

Is it time for the next China (NYSEARCA:FXI) growth scare? A few data points seem to lead that way. And it surely would come at an appropriate time to shake up the S&P 500 (NYSEARCA:SPY) and the VIX, which have as of late turned into one-way streets completely dictated by the Federal Reserve.

Here's the data

The indications are far and wide. Starting with the Shanghai Index, where a strong rally seems to have petered out (Source: Bloomberg):

Then there's copper. Copper never participated in the overall party that the stock markets are having, and in the last couple of weeks it took somewhat of a hit. It now stands on the edge of a possible breakdown (Source: Stockcharts $COPPER):

Still among commodities, Chinese steel prices also broke their recent uptrend and are now heading down again (Source: Bloomberg):

And then there's electricity consumption in China (Source: StockJockey's Tweeter Feed):

All in all, there seems to be significant data consistent with the possibility of a China growth scare, which together with the extremely overbought nature of the U.S. markets, can certainly lead to a couple of weeks of worrying. Also important, the level of margin debt in the U.S. markets remains near the record levels established during the 2007 debt bubble - there is thus a good deal of hot money ready to leave the boat once it starts rocking.


Over the past days and weeks, a lot of data coming out of China (or influenced by it) seems to have aligned in a way conductive to a growth scare. At this point it seems that the whole thing is like a powder keg just waiting for a spark, and off it will go affecting the present festive mood in the U.S. stock markets, at least for a couple of weeks (or more).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.