Risk Management: Watch the Hang Seng
You know our schtick by now that we view the Hang Seng Index as the indicator species for global risk appetite and a signal as to whether the Mainland’s economy will land hard or soft. Since returning from the Lunar holiday the Hang Seng is down 3.1 percent and has broken its 50-day moving average. We sense a growing concern about China’s economic situation as they continue to tighten monetary policy.
We’ve lightened up a little and monitoring the Hang Seng closely and a break of 22,600 would lead us to reduce risk across the board and get short certain commodities. A break in China would almost instantly turn all the market chatter about inflation into deflation, in our opinion. We are not certain where the Hang Seng and China are headed but we do know our action plan if certain support is broken.
By the way, have you been watching the bloodbath in Brazil and India, and today’s flop in the Korean ETF? Also watch carefully the response of the British Pound if the BoE raises rates tomorrow. (click here if chart is not observable)
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February 9th, 2011 at 8:30 pm
A lot of folks are on hair triggers but when it is realized that the inflation chatter was premature (as it has been going on two years now) the downleg in equity and commodity prices should be nearly as dramatic as the melt up in bond prices.
But that’s going to be a buying and a selling opportunity so what else is new?
February 9th, 2011 at 9:13 pm
You’re on the right track.. Here is a great story.. I’ve been following this for years.. Back in my UBS days (working with RW) I sent out a piece that the Hang Seng was signaling a bloodbath in emerging markets as it led the collapse of the Mex Peso in Dec 1994. The day I sent the out the piece EM Bonds were making their record tight spreads.. Everyone said I was nuts. Came in the next morning, the Hang Seng was down 10% and Brazilian bonds had fallen 20-30 points after making record highs the day before as the Korean holders were pasting every bid in sight. The Brazilian banks long the sovereigns were getting margin calls and had to sell their Russian GKOs… The thing just kept spreading and we had global contagion.
The economies shut down in Asia — relatively small economies at that — and oil fell from around $40 to less than $10 in a year. The Russians had to pay 100% on their GKOs to finance themselves as the their main commodity collapsed. Well, we know how that ended. Russia defaulted, hedge funds had to sell their Safeway bonds to raise cash, and LTCM blew up. Clinton wanted to change the global international infrastructure to “bail in” investors in the event a countries ran into BOP problems. Thank goodness he didn’t as most of these countries that would have been affected are now financing the U.S. Treasury…
How things change, but the Hang Seng remains!
February 9th, 2011 at 10:29 pm
Thanks for the post…. I’ve been so wrapped up in my little world jobbing the minis that I’ve missed the “big picture”, no pun intended…. A sneeze in the Hang Seng could very well contaminate the risk appetite….
Best regards,
Econolicious
February 10th, 2011 at 3:10 am
HSI has just now closed, down 2%, only 100ish points from your 22,600 line, Barry
February 10th, 2011 at 5:51 am
There’s enough risk right here at home:
http://www.dailyfinance.com/story/careers/falling-job-openings-trouble-labor-market/19835311/
February 10th, 2011 at 9:02 am
COPPER and CRUDE are good leading indicators too.
Along with the bullish US dollar…
March 7th, 2011 at 10:03 am
Looks like it is again banging at the 50 day MA…