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Tuesday, September 25, 2012

China's Shanghai Index at Variance with CB Leading Index

Data released Monday night shows that China's CB Leading Index spiked up to its highest reading in two years, as shown on the graph below. "This index is designed to predict the direction of the economy." It's a "combined reading of six economic indicators related to total loans issued, raw material supplies index, new orders, consumer expectations, export orders, and housing."

As I outlined in my post of September 20th, the Shanghai Index tells a different story as it trades at three-year lows and threatens to fall off a cliff, but China's Financials Sector has been trading in an opposite direction.

The question is, "Do we believe that the data is actually reflective of China's economy, or is its Index?"

The Shanghai Index has trended in diametric opposition to the S&P 500 Index over the past three years. Which one accurately reflects its country's economy, if either?

No wonder people are confused and are in the dark as to the real fundamentals of both the economy and the companies listed in the stock exchanges (and their actual values)! Hence, they are reluctant to commit any excess cash to the markets, particularly, it would seem, in China.