IN FOCUS: Trending – Big trouble in China makes big impact

Posted on Oct 1, 2015 :: Features
Andrew Schaick
Posted by , Insight on Business Staff Writer

Lately, the talking heads in the media have been saying the U.S. needs to “delink” its trade dependence on China. But why? There are good arguments for and against our dependence on China, but one thing is clear: the U.S. can no longer be insulated from global economic events.

In the first half of 2015, the Shanghai Composite surged 56.5 percent. Part of this gain is from the confidence in China’s astounding economic growth over the past 25- plus years. Another part is the insistence from state-run media outlets that average Chinese citizens invest in the markets. In 2015, these citizens invested and even borrowed money to invest. So now we have a huge number of amateur investors taking huge amounts of risk.

When Chinese economic data turned sour this year, investors fled the markets in droves and lenders told Chinese borrowers they wanted their money back. The Shanghai Composite dropped 8.5 percent in one day. It got so bad that the same index eventually dropped 38.9 percent.

U.S. markets followed with the S&P 500 dropping 12.2 percent over a few months. Even though China is our second-largest trading partner, U.S. markets couldn’t escape the influence of the Chinese economy. And that isn’t good news for U.S. markets right now. This could put another damper on American markets.

clearTREND research produced by our firm in Appleton indicates downward trends in most market segments except the NASDAQ  index. Our U.S. Economic Health Index shows that 18 percent of U.S. sectors are expanding while 72 percent are contracting.

“Since the inception of our economic health index, we’ve never seen so many economic sectors that are contracting,” says Alexander Hunt, advisor to private clients and retirement plans. “China has really scared investors into thinking that the U.S. could be heading into bear market territory.”

Click here to view the economic data in our digital magazine.