Overnight the Shanghai Composite broke down 5% to a new multi-month low of 3411. This puts the index 44% off of its peak reached last October.
On a percentage basis, the Chinese stock market has lost considerably more value than either the U.S. or European stock markets. Granted, the Chinese market far outperformed those other markets in the past 5 years, however, the parabolic path of the Chinese stock market (up and down) is eerily similiar to that of the Nasdaq circa 2000-2002.
It was just over one year ago (February 2007), when the global markets had a mini-crash in reaction to the Shanghai Composite losing 10% in two days. That turned out to be a non-event, as the Shanghai Composite went on to more than double in value in the ensuing 9 months.
Therefore, it's very interesting that the Shanghai Composite has now shed 44% from peak to trough, and yet this time, there has been very little commentary on this fact...After all, we've been told time and again that the Asian markets have "decoupled" from the U.S. economy and therefore won't be affected by the U.S. slowdown.
The fact that the Chinese stock market is underperforming the U.S. stock market tells me that someone of intelligence out there understands that the Chinese economy is highly leveraged to the U.S. economy, and that the path of least resistance for both markets is down...
