Scoring Asia: Dealing with China’s Dip

  • Wednesday, August 26, 2015

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Dropping over 20 percent, the Asian markets have been through a tumultuous week. This dramatic decline was sparked by the realization that underlying weaknesses in the Chinese economy were even greater than previously acknowledged.

Two weeks ago we covered the Asian markets, noting that the current score for Asian central banks was a neutral 0.24 (which we rounded to 0), but trending downward. That score has continued to fall, and now sits at -0.04. While a 0.2 shift in an individual central bank’s sentiment doesn’t necessarily represent anything significant, a 0.2 shift in the mood of an entire region has serious implications: in this case, a rapid decline in the market.

Two week ago we also suggested that China was a risky short term investment, but that some of the more developed Asian countries might be relatively safer. Since that time, however, several of these markets have been caught in the pull of a sinking Chinese economy. While the collateral damage has been significant, few have suffered as much as China–and more than a few have already begun to rebound–vindicating our investment analysis. We see these markets–like Taiwan and India–as great buy opportunities given their current low prices.

This drop in the Asian markets has a striking similarity to the 1998 Asian currency crisis, and we will dig into these connections in a forthcoming post.

The Prattle Team,
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Every week the Prattle team will be publishing its take on a global central bank region. There are 4 regions–European, North American, South American, and Asian–and the regions will be scored based on our analysis of all the central bank communications in that region over the past week. Indicating the “hawkishness” or “dovishness” of the region, the scores will be given in integers ranging from -2 to +2 where -2 is extremely dovish and +2 is extremely hawkish.

For more precise scoring on individual banks, speakers, and communications, you can reach out to Prattle on our contact page or through this link.