2015 Correction "OMG China!"
So we had “OMG Ebola!”, “OMG Greece!”, and now we have “OMG China!”.
But really, what is this global selloff actually about?
It appears investors are connecting dots that don’t actually connect. CN thinks about long-term goals, not day to day noise. They are allowing the RMB to float because that’s what the IMF said needs to happen for them to reach their reserve currency goal. The CN stock market has nothing to do with the economy, so we can’t say the selloff is connected to the economic outlook. The IMF said they should not intervene in the stock market, so they did not, be careful what you ask for! Oil is down mostly because of increased oil production.
Yet it seems the dummies have falsely connected these dots and are thinking “OMG China is slowing down, that’s why they devalued the RMB, that’s why the Shanghai Composite is down, and that’s why oil and commodities are down”. So everyone sells, and then the Chinese sell too, and then everyone sells some more!
But does that story really make sense? Sure CN GDP growth is slowing to 7.0%, Bloomberg economists estimate 6.6%. How is this news? How is this gradual slowdown a big deal? It’s still growing a lot! CN is fine with it, it’s the “new normal” in their words. We don’t have a lot of data yet, but an awful lot of sell buttons being pushed over a few data points that don’t necessarily connect.
So what’s it all about? What will it all look like in hindsight?