* See UPDATES below...
Today's Zero Hedge article regarding China's second-largest property developer, Evergrande Group (and its major debt obligations and defaults), prompted me to analyze a number of charts in light of previous articles I've written about China's Shanghai Index (SSEC) and China's Financial ETF, namely GXC, including other global indices and Financial ETFs. By the way, the last article I wrote about these markets and ETFs (on March 12, 2020) can be found here.
The words "widespread contagion," mentioned in the ZH article, should be taken into consideration when one examines possible financial consequences that we may see erupt in a big way, in China and, potentially, in U.S. and global markets.
My analysis of the situation is purely technical and begins with showing where a number of indices and financial ETFs are positioned today.
The following monthly comparison chart of the SSEC and GXC shows that they have, historically, moved in lock-step. However, note the huge divergence that has occurred since February 2021.
The GXC has fallen from a high of 156.29 to a low of 107.93...while the SSEC is still pushing up against its highs of this year.
So, either the SSEC will plunge to catch up with its counterpart, or the GXC will stabilize and spike to retest its all-time high.
Given what I've deduced from Zero Hedge's report, my own cynical outlook is that the SSEC will drop to somewhere around the 3000 level, or lower to 2500, or even lower yet.
I think that level will depend on whether there is, in fact, a catastrophic contagion fallout to banks and investors in China, as well as, potentially, banks and investors in the U.S. and Europe which may be directly, or indirectly, impacted by such fallout, as well as a knock-on effect on possible further supply chain disruptions around the globe and inflation spikes in this scenario, as well.
While the
GXC has dropped precipitiously this year, the
U.S. Financial ETF,
XLF, has remained near its all-time high, as shown on the following monthly comparison chart.
The following monthly comparison chart shows that
Europe's Financial ETF,
EUFN, has pulled back a bit from this year's high, while
China's GXC has plunged.
Keep a close eye on all three comparison charts and note how each of these three Financial ETFs are trending in the coming days and weeks.
They should signal how much of an impact or contagion may spread from the Evergrande debts and defaults to the banking sectors and investors around the globe...and how such contagion may impact the global equity markets...e.g., track the price action of the MSCI World Index and the GXC for a big-picture view, as shown on the following monthly comparison chart.
When price falters and begins to drop in the MSCI World Index, look for the SPX and European Indices to weaken, as well.
My last post on the SPX outlined, in detail, what to look for with respect to its own precipitous "bubble" formation that it's currently locked within. So, keep an eye on those clues, as well (e.g., other markets, namely, the U.S. Dollar, Treasury Yields and Gold).
Also, although I was a bit early with my projections of a parabolic blow-off top occurring in U.S. Banks, as outlined in my post of April 10, the threat is still there, and my comments are still relevant today.
* UPDATE September 16...
Things could get ugly for Evergrande investors, as well as Chinese and global markets...
Excerpt from ZeroHedge article
* UPDATE September 19...
Monday's trading in China should be interesting...as well as in U.S. and European markets...although, U.S. traders may hold back on major selling in the hope that the Fed remains dovish in its upcoming meeting on Wednesday...
* UPDATE October 8...
China's $62 Trillion real estate sector "rotten to the core?"
If the worst case scenario is, in fact, playing out (as alleged in the following Zero Hedge article), we'll see whether the fallout spreads globally...catastrophically.
N.B. That dreaded word 'contagion' has reared its ugly head -- again -- in this report.
Excerpt from ZeroHedge article
* UPDATE October 11...
The contagion is spreading...
China is being hit with 'galloping inflation'...
* UPDATE July 25, 2022...
With investors pulling their money out of China on a scale second in size to the COVID crash, there is a "threat of a further disintegration of their financial system should their housing crash escalate further"...
* UPDATE September 27, 2023...
More trouble ahead for China and its property developers...especially Evergrande...
~~~~~~~
N.B. Keep an eye on on what I'm monitoring for signs of weakness on the
SPX here and
here (relative to
potential global contagion from China)...as well as my latest article on
China here.
