The following graph of the iShares China
Large-Cap ETF (FXI), our favorite proxy for China’s stock market, is still
hanging on by a thread above its recent lows.
A close decisively beneath the 33.00 level for FXI would likely roil
global stock markets just as the previous decline in FXI did in January. It will be well worth keeping an eye on FXI
in the upcoming days.
Speaking of China, it’s worth noting that Goldman
Sachs Group has warned that financing arrangements in China using commodities
to obtain credit may unwind in the next 12 to 24 months. The unwinding would likely be driven by
increased volatility in the yuan currency, according to Goldman. The unwinding would be bearish “given
relatively limited physical liquidity to absorb the shock,” Goldman’s chief
commodities analyst Jeffrey Currie wrote.
It
will also be important to monitor the Russia ETF (RSX) in the period between
now and April 4. As you can see here,
RSX (our Russia proxy) still hasn’t confirmed an immediate-term bottom as it
hasn’t yet closed two days higher above its 15-day moving average. RSX was down 3.53% on Wednesday as the
initial euphoria over the past weekend’s Crimea vote subsides.
Contrary
to Wall Street’s expectations, global market volatility is still a prime
consideration for stocks in the intermediate-term. China’s slowing economy may come to exert a
significant drag on global equities as the year progresses, and Russia will
remain the proverbial powder keg until the Crimean situation has been fully
resolved. Until then, investors are
advised to fasten their seatbelts as there will likely be increasing turbulence
in the coming months.
[Excerpted
from the Mar. 19 issue of MomentumStrategies Report]
