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China and Australia Indices: An Abnormal Divergence

ByCandy Matheson
Published 03/30/2020, 01:52 AM
Updated 07/09/2023, 06:31 AM

As can be seen on the following monthly comparison chart of China's Shanghai Composite (SSEC) and the Australian 200 Futures Index (AUS200), their price swings began to markedly and, abnormally, diverge from December 2017 to present day.

While the AUS200 continued to make new swing highs, the SSEC failed to do so.

The AUS200 has plummeted and has now made a new swing low, while the SSEC has not...yet.

We'll see if this significant weakness in the AUS200 is a harbinger of much further weakness to come in the SSEC in the next few days/weeks.

Shanghai Composite Monthly Chart

Latest comments

My guess is that over the Easter period: 1. if ANZ/NAB/WBC can maintain 50+% their previous dividends, then banks will continue to rebound after Easter,  2. if some sort of deal is reached to cut oil production, then resources sector will continue to rebound These two factors could help propel the index toward the 5500 area. imho, both are reasonable expectations, but the big unknown is if new virus cases spike during Easter, causing renewed concern about the duration of shutdown, which could wipe out the optimism seen today. My bets are that people will follow gov guidelines and stay home, helping to keep down the number of new cases, but i could be wrong.
Normally i look at CSI300 instead of Shanghai Comp. But AUS200's extreme weakness was easy to explain. The Australian economy has a few key pillars: 1. Mining/Resources - down sharply (oil & industrial metals) 2. Tourism/Education - shutdown 3. Retail - shutdown 4. Consumers - with close to a million people out of work, and a decimated currency due to 1. & 2, consumption is down as well, except for stockpiling of staples. 5. Banking and Finance - with RBA cutting rates close to 0 and bad debts looming, banks are getting hammered. The only bright spot is healthcare and a few special niche tech companies. China's market has a very different mix of large businesses with strong gov. support to prop up its markets. This week, with the virus's new cases flattening, optimism returned and AUS200 has rebounded strongly, whereas China's market is going nowhere. It's anybody's guess how these two will perform relatively going forward, but i'd put a large chunk of my own money into AUS200,
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