Friday, July 5, 2013

Trouble brewing in China

The real economic and financial trouble spots in the world right now, however, are to be found primarily in Asia.  On Wednesday, a report showing slowing growth in China's service sector weighed on global markets. The National Bureau of Statistics reported that China’s services PMI, a measure of activity, had fallen to a nine-month low of 53.9 in June from May’s 54.3.  Although no major media outlet will come right out and say it, China is deflating.

The single best predictor of China’s business outlook is its stock market, and this can be seen in the relentless decline of the Shanghai Composite Index shown below.  China has actually been in the throes of a bear market for four years and this can only mean its economy will experience more turbulence in the months ahead.  If you were an odds maker and wanted to lay odds on where the next major economic crisis would begin, you’d have to point to China as being the most likely candidate.

Perhaps it is fitting, as tonight’s headline suggests, that as America prepares to celebrate its independence, it can still boast of being a bastion (relatively speaking) of economic and financial market stability.  Meanwhile chaos and uncertainty are increasing in other parts of the globe.  History tells us that sooner or later the world’s troubles inevitably end up on America’s shores, as it did in 1998, 2000-2002, and 2007-2008.  But until that fateful day of reckoning comes, the U.S. remains the undisputed leader among the global powers in terms of its buoyant equity market, strong corporate sector and firm retail economy.  [Excerpted from the 7/3/13 issue of Momentum Strategies Report]

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