There’s been chaos in global markets.
Stocks fell more than 3% in the US on Monday, a decline that followed a 3% sell-off to end last week.
But on Tuesday morning, stocks were ripping higher, a move being largely attributed to the People’s Bank of China’s decision to cut rates.
And so while the consensus is sort of coalescing around the idea that the latest moves in the stock market — both up and down — have to do with China, Deutsche Bank’s Torsten Sløk circulated an email on Tuesday morning questioning the logic behind this reason.
“I have two problems with the ongoing global stock market sell-off,” Sløk wrote.
1) Betting against China has been a losing proposition for decades, why should now be different?
2) Despite this being a client conversation for several months, I still haven’t seen a smoking gun chart showing why a slowdown in China will have a significant impact on the US expansion. If you have one then please send it along.
Sløk included the following chart, showing spikes in the VVIX — which measures volatility of the VIX index, which measures expected volatility in the stock market — during the Lehman event of 2008 and the Greece crisis of 2011, among other big events.
Is this really the same sort of problem?
Not to Sløk, who writes: “As a result, I conclude the following: When uncertainty about corporate America reaches an all-time high — see chart below — because of “something in China” then it looks like a buying opportunity to me; wait for your 5-day moving average to stabilise and it will likely be a good entry point.”