June 22nd 2018 Market Minute

June 22, 2018

The Shanghai Composite (SHGIDX) dropped below 3,000 for the first time since August of 2016. For the year 2018, it is down over -11%, and about -19% from it 2018 high. All Asian Equity Markets are down for the year excluding Australia’s All Ordinaries (XAO) which is up 2.5%.

Around the globe Equity Market Indices are also a mix of positive and negative year- to-date.

France’s CAC 40: 1.4%

German DAX: -2.6%

London FTSE: .12%

Japan NIKKEI: -1.0

US Dow Jones: .50%

US SP500: 3.0%

US NASDAQ: 11.4%

Market Data Source: Thompson One Financial

On Tuesday of this week the SHGIDX dropped almost 4%. I have not seen any articles from any financial news sources noting any buying by the ‘National Team’.

The “National Team” is the nickname sometimes used in China to describe buying intervention by those institutions (Banks, Brokerages, Insurance Companies, et al) where the Chinese Party has the most control.

The Tuesday drop, as you would expect, is being blamed on the ‘Trade War’ the US is beginning to engage in with China. I continue to find it interesting to hear and read what the ‘experts’ are saying regarding a ‘Trade War’. Interesting, because it has been so long (20+ Years) since the US has been in a trade war that we cannot possibly have a clear understanding of it’s modern day implications.

I have been thinking this week how easy it is to blame ‘things’ on President Trump. Or so many think. The US market is blaming him for the trade war and it’s impact on the market, yet the Chinese controlled media is quiet about the impacts on their equity market. This is quite normal for them because they are usually quiet about their market. Period. Hong Kong news sources like the South China Morning Post

(SCMP) is addressing the big drop in the Shanghai Composite much like US News Sources. The SCMP has some articles attributing the drop to slower Chinese growth and tightening Chinese monetary policy too.

I continue to believe that rising interest rates here in the US may have significantly greater impact outside the US than inside.

With the many difficult and complicated challenges the Chinese face with their leveraged economy and it’s ‘fixed’ exchange rate with the US$, having someone ‘easy’ to blame may be useful in the future. Especially if these challenges get even more difficult and even perhaps become ‘out of control’. The concept of their financial markets, economy, and even potentially their social and political fabric becoming volatile would not be tolerated by the current Chinese leadership.

Source: Wall Street Journal, South China Morning Post, Thompson One Financial

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