It has been many moons since I mentioned the Chinese economy and their stock market. This was not an intentional oversight but mainly due to the fact that there wasn’t really much to discuss.
The last time was in May 2010 when I engaged in some hand wringing over the perilous path set for China’s monetary policy: Chinese Bubble Threatens Everyone Else.
The monetary authorities in China have taken multiple steps since then to try to manage their overheating economy. They are keenly aware of the runaway inflation that threatens the impressive progress they have made in such a short time.
Since falling below its long term trend (200 day moving average) in early 2010, the Shanghai Composite has been basically dead money:
It has since regained the support of the long term average but the remaining resistance, as well as the weak Baltic Dry Index suggests that there is little to cheer.
The comparison of the Baltic Dry Index with stock market indexes is something that I attempted a while back. I’m still not sure if there is strong evidence that it is a leading indicator. But being the representational cost of shipping, it does indicate the perceived cost of world trade and therefore, economic activity.
In any case, a simple technical analysis of the Shanghai stock market would indicate that given the relative weakness it has been suffering, especially compared to the S&P 500 index, there is little reason to look for long opportunities in this market.