Asian Bear Markets Signals Corrections in US Stocks

Chinese stocks are entering a bear market. China's holdings are very tech-heavy and mostly internet-based. ex. Alibaba, Tencent, JD, Baidu, Weibo, IQIYI. The Chinese government has concerns over the power these large corporations can wield on their citizens leading to increased regulation. Likewise, the US Government has been closely watching their own tech giants in an effort to reduce their influence. Inflation fears have also affected Tech valuations with these being seen in both Asia and US markets. As inflation rises, nominal rates also rise increasing the discount rate for discounted cash flow valuations. Furthermore, many funds and retail traders are leveraged (margin) in the Asia markets, and once things start to unravel it usually leads to faster declines.

Tech stocks are a leading indicator of the broader market. Semi and Tech dictate the path of the economy. There is a strong positive correlation between semiconductor growth and economic expansion. The semiconductor manufacturing process is expensive and involves large amounts of capital making it more sensitive to changes in interest rates. If China's economy is headed for a downturn then, the world economies will eventually join them. China is a good leading indicator because, the issues that affect China's manufacturing will be felt by the United States, Europe. The past bear markets in China have served as a leading indicator of the direction US Tech Markets will take.

Taiwan is more heavily invested in industrials and manufacturing ex. TSM.

Komentarz:

An Interesting discovery, bottoms in FXI correlate to bottoms in US markets in particular QQQ.