Chart Of The Day: Chinese Stocks Turn Red For The Year

Tyler Durden's picture

There was much chatter by the punditry in the early part of 2013, when the Shanghai Composite appeared relentless in its surge, when it was tracking the S&P virtually tick for tick, hitting a 2013 high in mid-February, and which was "explained" to be the prima facie proof of the Chinese rebound. The reason said chatter has disappeared is that as of last night's close, the SHCOMP is now officially red for the year.

Why did this rapid and disappointing inversion occur? One simple reason: inflation, or rather the PBOC's response to the surge in G-7 central bank created hot money which is flooding China.

Overnight, the governor of China's central bank warned that they are now on "high alert" as February's inflation figures came in hot. As warned here last year, China is the world's inflation-catcher and as the rest of the world prints, Bloomberg reports that Zhou Xiaochuan notes that monetary policy is "no longer relaxed," which might help explain why the Shanghai Composite is now negative YTD and underperforming the world's liquidity-fueled idiocy in stocks. "The central bank has always attached great importance to consumer prices," Zhou said. "Therefore we will use monetary policy and other measures to hopefully stabilize prices and inflation expectations."

Of course, with a tightening bias out of the economic engine of the world (which for now appears entirely irrelevant fundamentally) one might worry about not just global stock valuations (and earnings growth miracles) but the local government financing loans in China itself that, as Zhou notes, "are prone to risks."

Very odd to hear a central banker be so frank and honest but it appears the Chinese really do care about 'real' inflation - as they know the potential for social unrest that arises from soaring food costs (especially pigs it would seem as supply floats away.)

However, the take home here is that if and when a central bank makes it clear that no more easy money is coming, stocks are the first to take the hint.

For now only China has taken the hint: GETCO's DJIA ramping algos are still very much blissfully unaware.

But more important is the other tangent: with inflation once again on the rise in China, the direct beneficiary is always and mostly gold, as stocks are forsaken. Recall that the main reason for gold move's in 2011 from $1400 to $1900 was the soaring Chinese inflation (driven once more by global reflation and Chinese easy money policy). Judging by the recently rising price of gold, the days when gold langished with "more sellers than buyers", even as the Fed dilsuted base money by 3% every month, may finally be coming to an end.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Smegley Wanxalot's picture

Going by recent behavior this ought to send DOW to 15,000

TheFourthStooge-ing's picture

In the meantime, Chinese pork bellies are blobbing up.

hedgeless_horseman's picture



If it gets anymore expensive to feed dairy cows in the USA, we might start seeing them in our waterways.

Fortunately, our family cow gets by on pasture, with a little alfalfa to keep her busy while she is milked.  Commercial dairy farmers have it much worse.

otto skorzeny's picture

midwest has had plenty of rain to get out of drought conditions and cool temps-may be a bumper year for grains. remember-the only farmer that doesn't bitch about grain prices(or get govt subsidies) is a a dead one

hedgeless_horseman's picture



Of course, it is the consumer that is subsidized, not the producer.


Most farm subsidies are actually just transfer payments of money taken via taxes from the wealthy minority to pay a portion of the cost of food for the many food consumers that do not pay taxes; nearly 50% of the US, if I remember correctly.

Price paid to farmer = government subsidy + artificially low "market price"

The whole "paying farmers not to produce" is just a distraction, and represents very little of the actual payments.

This inflation effect would be additive to dollar depreciation, should tax revenue not be available to subsidize the price of food.

otto skorzeny's picture

seriously? there is not a greater recipient of govt largesse than your average US farmer. why do you think alot of thieves in Congress own farmland-for the big tax breaks.

hedgeless_horseman's picture



You understand how school lunch programs work, right? The schools are not being subsidized, the poor students are. It is the same with farm subsidies.

Price paid to farmer = government subsidy + artificially low "market price"

The farmers have no choice, because they do not set the price, and they must sell the crop. Care to know who does?

otto skorzeny's picture

care to know how much the price of corn would be if the US allowed Brazilian corn into the US market? or sugar if we took the massive tarriffs off? the farmers around here in Il wouldn't be able to afford $400k John Deere combines and $60K F350s.  but the corn industry and Durbin and Grassley don't allow that to happen. my grandfathers(deceased) and uncles farm so I have a little familiarity with the process.

hedgeless_horseman's picture



Of course, Otto, you understand that there are significant differences between import tariffs and farm subsidies. This discussion has not been about who benefits from import tariffs (hint--tariffs are revenue for the federal government, not the farmers).

Price paid to farmer = government subsidy + artificially low "market price"

It is the artificially low "market price" that is being subsidized, not the price paid to farmer.  The farmer is going to sell his crop, regardless, as people must eat.

Son of Loki's picture

HH, Any news about cotton? I was wondering why we do not see higher cotton clothes prices given that cotton prices were up almost 100% last year...or am I wrong?

hedgeless_horseman's picture



Cotton clothing is VERY expensive.  Go price 100% cotton sheets.  Clothing producers are using less and less cotton, which concerns Mrs. Horseman.  Only 100% cotton work shirts can both stand up to her abuse and be worn in the Texas heat.

Son of Loki's picture

ok. Thnx HH. I do notice lots fewer 100% cotton sweaters, etc on the shelves this year and I also notice the 100% cotton ones are not as reduced as the blend ones such a acrylic, etc. You are very correct about those 100% cotton sheets. I am glad I stocked up two years ago on all this cotton stuff....I expect cotton to rise steadily with time and many items will simply disappear since the average sheeeple will settle for a synthetic.

I need more cowbell's picture

Oh no, Chinee no have POMO? Too bad, so sad.

ZippyBananaPants's picture

"you can blindfold them with dental floss"


Unprepared's picture

"chinese stocks turn red"

The more politically correct term in this case would be "turn communist."

Son of Loki's picture
South Korean Stocks Whacked as War Threat Looms


Increasing tensions with North Korea, a strengthening won versus the yen and weak economic growth - things are not looking great for South Korean equities, the second worst performing stock market in Asia this year.|headline|quote|text|&par=yahoo



Moneyswirth's picture

Clearly bullish for US equities.  Clearly. 

Shizzmoney's picture

It's the pigs fault

BlueStreet's picture

But their exports are increasing, how can this be.  Fuck you CNBC.  



SheepDog-One's picture

WOW no problem! USA = A-OK!!

otto skorzeny's picture

To me this is a better buy than any other index-it's the only one that reflects the state of the world's economy.

Hughing's picture

Time to send the Chinese to reeducation camp in Cambridge or Princeton. F**king ignorant savages, really  /sarc

Mr. Hudson's picture

: "the surge in G-7 central bank created hot money which is flooding China."

The Chinese will create a new dish called "Sizzling Hot Money with Hogwash Pork".


swissaustrian's picture

Welcome to the nikkei/shcomp spread trade. Make sure you're using fx hedges.

Downtoolong's picture

which was "explained" to be the prima facie proof of the Chinese rebound.

It seems clear by now that no one gets paid big bucks to be right. They get paid big bucks to be convincing.


NoDebt's picture

What's a little double digit inflation between friends?

101 years and counting's picture

we must look to china for the rise of capitalism as the fall of capitalism occurs in the west.

buzzsaw99's picture

Their central planning is better than the bernank's.

eigenvalue's picture

There should be another chart: Precious metals have been negative SINCE the beginning of the year and goldbugs and silverbugs have become more and more desperate.

Village Smithy's picture

Gold and silver bugs cannot become "desperate". It's just not in their DNA.

e-recep's picture

have you ever seen a goldbug jumping off a skycraper?

NoWayJose's picture

Much to hard for goldbugs to carry their stacks to the top of a skyscraper. Most prefer to stay in their bunkers, read ZH, and wait for the bubbles to pop.

q99x2's picture

What a market not being used as a weapon for financial terrorism.

Mr. Hudson's picture

I bet Peter Schiff is schiffing his pants.

yrbmegr's picture

China's slowdown will become self-reinforcing at some point, as bad real-estate debt becomes increasingly unsustainable.

Shizzmoney's picture

This will go over well:

Chinese 'must swap chopsticks for knife and fork'

Then again, as the comedian Jerry Seinfeld once joked, parting the Chinese from their chopsticks is no mean feat.

“They’re hanging in there with the chopsticks, aren’t they? You know they’ve seen the fork. They’re staying with the sticks.

“I don’t know how they missed it. Chinese farmer gets up, works in the field with a shovel all day. Shovel. Spoon. Come on. You’re not plowing 40 acres with a couple of pool cues!”

orangegeek's picture

Who cares about the Shanghai index?  China has empty cities.  The markets have gotta bounce back, they just gotta.


Bounce back like a dead cat....or dead pig.

mrdenis's picture

Who took the big put posititon in FXI ????

Doode's picture

That very chart has the answer!! Common you can do better than that! There was an earlier divergence on the VERY SAME CHART so why are you asking given that chart!