The Chinese stock market is headed south. Our early 2016 drop was related to China, but we’ve rallied to recover since. The same can’t be said for China’s problems.
Early 2016 forecasts for China indicated a 12.5 percent decline was in store. But the actual data from the beginning of this year shows decreases of more than 25 percent!
In that context, it’s not surprising that China’s industrial output has slowed to its lowest levels since late 2008. The low production levels mean the country’s export machine isn’t being fed, and given the breadth of Chinese exports, effects are being felt in some of the world’s largest economies.
Where is this happening? Brazil, Canada, Germany, France, Japan and the U.S. have all experienced 20 percent or more drops in Chinese goods. Those countries being hit that hard is a telling sign of our global economy!
Fears persist that the U.S. market is headed for a similar downward plunge. Our domestic market is the most expensive it’s been, according to its price/earnings-to-growth ratio (PEG ratio). Is it overvalued and perhaps ready to decline? Nobody knows the answer.
However, one thing is for sure – traders today seem to focus on the words of Janet Yellen and Mario Draghi more than firms’ revenues, balance sheets and profits.