Decoupling Concept

[winston]

And there are a lot of investors who invest based on economic growth ..


Potential crises may be found in the data
Monday, January 31, 2011

Something unusual happened last year - stock markets in nations enjoying strong economic growth were not particularly outstanding.

In fact, stocks did better where the risk of a double dip still existed.

China's gross domestic product growth last year exceeded 10 percent, but Shanghai failed to make even the top 80 bourses in the world.

Many uncertainties prompted the Federal Reserve to launch a second round of quantitative easing in the United States. Still, the Dow Jones Industrial Average gained more than 5 percent.

A "bipolarzing effect" may be developing between a country's economy and its stock benchmark.

How long will this "effect" last? Bubbles develop as the spread between stock indexes and the economy becomes unreasonable.

Investors then are prone to lose money due to the sharp correction that follows. They need to know how to figure out when the bubble will burst.

Pay more attention to financial data and it will be easy to observe omens of a potential crisis.

Take US stocks, for example. A drop in the bond market indicated that capital flowed from bonds to equities recently.

But a rise backed by internal capital and no overseas inflows is not sustainable. So the slide in the US Dollar Index after peaking on January 10 may signal that Wall Street is about to change direction and head south.

Another indicator is the CBOE volatility index. It bottomed on January 14, nearly two weeks before the S&P 500 rose above 1,300 points.

The S&P and other indexes fell on Friday due to Egypt's troubles, but its is clear the benchmarks would not be able to sustain their rise without substantial support.

In the days ahead, pay close attention to the Baltic Dry Index, which may be the next signpost. And be careful as the shipping sector may have already peaked.


http://thestandard.com.hk/news_detail.a ... 10131&fc=1

[winston]

The Decoupling Myth: Emerging Market ETFs Are Determining Where U.S. ETFs Will Go By Gary Gordon

NEW YORK (ETF Expert) -- By now, most investors have at least "felt" the sting of emerging market under-performance. Still, I don't believe there is widespread recognition of just how large the performance gap is.

U.S. market-based securities -- from the smaller companies to the largest mega-corporations -- have been unflappable. On the flip side, small-caps and large-caps in virtually every key aspect of the developing world (e.g., Brazil, India, China, etc.) have been beaten with the ugly stick.

Some analysts have tried to write off this discrepancy. They've suggested that the developing markets have out-hustled since the start of the new bull market, and a normal shift towards developed world stocks is a valuation-based move.

Others explain that the developing world is struggling with inflation containment, whereas the developed world is successfully tackling deflation forces. Still others think the emerging market bubble has popped, and that the U.S. already dealt with its collapse.

Am I the only one who views these explanations as "Halftime-Show-at-the-Superbowl" poor? The world is far too interconnected for developing country stocks and developed world stocks to decouple for long periods of time, let alone move in opposite directions.

More importantly, the developed world no longer leads... it follows. If emerging stocks continue hitting lower lows, their collective pull will drag down the surging Dow. In fact, if you're looking for dip-buying opportunities, you shouldn't focus your attention on every half-percent pullback on U.S. equities. The opportunity for wealth-building exists where fear reigns supreme.

Can you think of a country that is causing more trepidation than China right now? With its three rate hikes and seven increases in bank reserves?

Yet the MSCI China Index trades at a desirable 11.5x forward earnings. Once China stocks stop dropping like golf balls in a hail storm... perhaps when the Chinese policy-makers shift to a more neutral stance... expect SPDR S&P China (GXC_) to rocket forward. By no means do I think you need to be an immediate buyer.

In fact, if inflation abroad is not properly contained, the contagion won't be limited to a region. Keep in mind, 50% of the earnings by S&P 500 companies typically come from overseas operations and 1/3 of those profits may come from the emerging world. You simply can't have spectacular bottom-line profits or impressive top-line revenue if input costs continue to rise.

Simply put, the easiest way to identify the ultimate direction for U.S. stock assets is to follow a fund that tracks the MSCI Emerging Market Index. You can track Vanguard Emerging Markets (VWO_) or iShares Emerging Markets (EEM_). If VWO can stay above or bounce off its 200-day trendline, U.S. stocks will avoid a bearish twist of fate.


http://www.thestreet.com/story/11005647 ... L_btb_html

[winston]

Yesterday, Europe was very weak but there was a one day reversal in Asia.

Today, the Dow is up 275 points but Asia is negative.

So Asia is leading Europe and the US now ?

[winston]

TOL:-

Was there really any "decoupling" during the last two months ?

[winston]

Dow dropped 300 points and HSI is up .

Go figure ...

[winston]

TOL:-

Is the HSI decoupling from what's happening in Greece ?

Yesterday, the HSI was down 450 points at the bottom and then closed +350, a move of 700 points !

That's because the HK market was going up on rumors that China will be relaxing their RRR for selective banks.

Events in China are closer and the Greek's referendum is still 2 months away and anything can happen in that Greek's Soap Opera...

[winston]

Didnt I say that HK is Decoupling from the US ?

Yesterday, the Dow was down 300 points and HK staged a 700 points turnaround from the bottom.

Today, the Dow is up 178 points and HK pre-market is down 315 points.

Or is it because of the very negative US futures ?

Am seeing weakness in Korea and Australia as well.

[winston]

Makes sense ?

The S&P 500 is flat so far this year… while major BRIC indexes (Brazil, Russia, India, and China) are all down 15% or more.

[kennynah]

the day major bourses decouple from one another, is when we finally discover intelligent life on Mars.

until then, i'm afraid, we are living in an interconnected world...

[winston]

TOL:-

Dow down 248 points yet Asia is not following the Dow. Did the Dow follow the Asians lower or was the Super-Committee dead-locked, not the end of the world ?

Nikkei flat.

HK up 75 points.

Korea up 0.5%