Societe Generale’s cross asset strategy team’s October research note, an epic 63 page monster that investigates the impact on global growth and financial markets from a hard landing in China, has certainly got the markets talking. Given heightened concerns over the outlook for the world’s second-largest economy – something that has contributed to substantial financial market volatility over the past three months – the note is not only timely, it’s resonating with investors.
One chart in particular has found stardom among the investment community – a prediction of what a hard landing in China would do to the US S&P 500 stock index.
There’s little wonder why is creating such a stir.
Resembling a waterfall, or a cliff base jumpers would leap off, it suggests a theoretical drop in China’s GDP growth rate from 6.9% in 2015 to 3.0% in 2016 could see the benchmark US index tumble back to its GFC lows – some 1,300 points below its current trading level.
Thankfully, Soc Gen don’t attach a high probability of a hard economic landing in China occurring, putting the odds at just 10%.
Hopefully they’re right. Otherwise the correction in stocks – not only in the US but globally – is likely to be substantially more than that.