The US Relationship with China has been a hot topic since the general election ended. Mainly because of President Trump’s strong views about or trading role with China and their role in consuming jobs that could be staffed in the US instead. Many scholars, political and economic experts and as always social media know-it-all’s have weighed in on this topic. I have a very different take from all of them. China has turned into a partner walking hand and hand with us for over a year. Let me explain.
The chart below shows the Shanghai Composite against the S&P 500 over the past 11 years. There is an obvious contentious relationship early on with the Chinese market outperforming into late 2007. The financial crisis threw this into turmoil over the next 18 months, and then the US stock market took control. The US market out-performance lasted for the next 6 years, until 2015. The Chinese market gained some traction and outperformed for the next 18 months.
But since the beginning of 2016 something changed. After many years of a contentious relationship between the markets, they started to move together. From a view at the bottom panel you can see that the US market has just steadily plodded higher. It is the Chinese market that changed course to join the US market rising higher. Maybe the future will not be that contentious after all. Correlations can hold for many years, as was seen in the 6 years following the financial crisis. Will this one last that long?
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