A-shares -- a Leading Indicator for Copper?

1. It is postulated that Shanghai A-shares are now the leading indicator for the world economy. Or at least the world seems to think and react that way. This is because the world believes that China is the growth engine that will power us all out of recession. Any hiccup in China seems to be felt around the world in most major asset classes – especially in commodities and stocks.

2. It is also postulated that industrial metals have taken on a very financial assets-like nature (especially as of late) due to excess Chinese liquidity turning many there into speculators in the booming metals market. correlation between the two assets are at the highest point in a while.






3. If you believe that copper and A-shares have the same underlying drivers (speculative fervor of the chinese public and accommodative financial policy), then it’s worth a look at current price action where the A-shares have been sharply down. Call me crazy but it seems to me like copper has the tendency to trail the A-shares on big moves.

4. So, given the recent big fall in A-shares give us a tradeable signal? Obviously, it all comes down to getting the direction of risk right. If the A-shares go on a sustained drop then I would think every risky asset in the world would follow. BUT if you have a mandate to trade copper the A-shares could provide a useful turning signal.

DISCLAIMER: I obviously do not spell out all the details of my research and will intentionally leave out some crucial stuff. Also, it is quite possible that I might already have established a position in any trade idea I discuss here.

Gone Shopping-

Americans aren't shopping, but guess who are - them Chinese folks.

Am catching up on all the major econ news from this week and got to read deeper into the Chinese data from earlier in the week. I don't put much faith in their official data. Hiell, it's hard enough to figure out what US numbers are saying and how they're put through the sausage maker, data released by Chinese government?

One thing that has surprised me about China is the continuing strength in consumption. Granted that they come from much a lower base and do not have anywhere near the room to cut back as they do in OECD, I am surprised the reduction in exports hasn't trickled down to hurt consumption and retail sales.

One explanation might be (from Bloomberg):

``This [retails sales number] is encouraging,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``But it's too early to say whether it can be sustained, because part of the increase was supported by the stock market.''


Households are switching money from bank deposits to the share market.

``I make about 5,000 yuan a month investing in stocks,'' said Peng Li, 25, a student eating at the food court of the Mix C Shopping Mall in Shenzhen. ``I spend most of my money on eating and shopping with friends.''

I am probably not the only person thinking shiet might hit the fan over there. People using an asset bubble as an ATM for spending? I have seen this movie before. When is the billion dollar question. I ain't shorting yet.