China’s Market And US Economy Not Correlated

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China’s Market And US Economy Not Correlated

“Davidson” submits:

Bloomberg has a good article on recent volatility of Chinese markets which is a good read at this point in the global economic/investment cycle: http://www.bloomberg.com/news/articles/2015-07-27/chinese-stock-index-futures-drop-before-industrial-profits

 

Here Are Bill Ackman’s Favorite Hedge Funds

Bill AckmanMany of the most well-known hedge fund managers in the world engage in philanthropy, and in doing so, they often reveal their favorite hedge funds through a review of their foundation's public filings. Bill Ackman's Pershing Square Foundation invested in several hedge funds during the fiscal years that ended in September 2019 and September 2020.

China as part of the emerging market asset class (EEM) peaked in early 2011 and then had a recent spike which represented highly speculative anticipation by Chinese investors of’ A Shares’ entrance into the larger MSCI index. I recommended all investors exit early 2011 and have not recommended a return. My last strong ‘Buy’ was late 2008-early 2009. I did recommend sale of this asset class in 2007 prior to the correction of 2008. Price moves due to market psychology are never sustained if the underlying economics are not there.

 

If your perspective is longer term and you are patient, you wait for your investment opportunities and do not let the market psychology of the moment force any investment decision. While Emerging Markets do offer opportunities at points in the economic/investment cycle, I do not see it as attractive at the moment and continue to recommend investors avoid them as I have since 2011. At some point, prices will fall enough to justify bringing this asset class back into portfolios. Now is not the time in my opinion.

 

Since Hedge Funds invest across all markets, whenever one market they hold falls they are forced to sell the most liquid equity asset. This is the SP500 ($SPY) . The phenomena of the SP500 falling every time we see turmoil in other markets is mostly due to Hedge Funds being margined and having to sell something liquid to meet daily margin limits. One could say that the illiquidity of all other markets is reflected in the SP500 by Hedge Fund activity. Markets are tightly connected by Hedge Fund speculation and use of leverage. Because many believe that markets ‘predict economic activity’, we are constantly hearing that the US is suffering due to China or some other market. The economic facts are actually opposite to these widely held perceptions. The underlying truth is missed by most professional and individual investors. If one sticks to economics and ignores the whims of market psychology, even for a couple of years at a time you will appear to be out of sync over the long term you generally come out ahead.

Below are screenshots of the performance histories of EEM (iShares MSCI Emerging Markets) and FXI (iShares China Large-Cap) to illustrate my talking points.

China
China

Screen Shot 2015-07-27 at 10.38.14 AM China   peaked in early 2011 and then had a recent spike which represented

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.
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