The Shanghai Composite is basically at post-crisis lows, while the S&P 500 is basically at post-crisis highs.
The S&P vs. the Shanghai Composite is a chart that fund manager Jeff Gundlach is fond of observing, so we asked him his take on what’s going on.
Strength is SPX and other “developed” stock markets reflects sentiment improvement regarding Europe versus the abject doom and gloom depths of late May/early June.
Weakness in SHCOMP reflects concern over slowing growth in China compounded by higher food and energy prices since late May/early June.
Since June 1 global “developed” stock market lows:
SPX price up 11.1%
SHCOMP price down 10.8%
IBEX price up 24.4%
The slow growth in China is much talked about, but the extra squeeze from high food prices is probably a bit less appreciated. Rich countries can handle a food price spike much more easily.
As a followup, we asked Gundlach if he thinks this divergence can last much longer
I doubt it. Thus short SPX long SHCOMP could be an interesting speculation. Probably a better trade today than the short SPX/long IBEX trade that has worked well since I recommended it at Ira Sohn (up 8.3% on the pair trade).