As China Goes, So Goes Commodities
- Posted by TheArmoTrader
- on April 2nd, 2012
There was a phrase that was used in America during the 19th and early 20th century to describe the elections: ”As Maine goes, so goes the nation”. The phrase described Maine’s reputation as a bellwether state for presidential elections. Whichever party won the governorship (which was held before the presidential election) in Maine correctly foreshadowed many of the presidential outcomes throughout the two centuries.
There’s a very similar correlation with commodities and China going on right now for over the past year or so.
Below is a chart of the Shanghai Composite (China’s main stock Index) and the Reuters Jefferies CRB Index (Commodity Index). As you can see, there is a very tight correlation. China goes down, commodities follow. China bounces, commodities follow. Yes, there are small divergences here and there but the correlation seems to be very tight.
This correlation also makes a lot of sense on the $MACRO side of things. China is a fast growing nation that has about 1/5th of the world’s population, thus having a massive effect on global demand. Not only that, but many nations depend on China for their export economy. If China slows, they slow as well.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science. He started trading in September of 2008. He concentrates on using technical analysis and reading the tape to enter the best risk/reward trades. The stock market to him is one of the greatest inventions by man.
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