It is not uncommon for shares and the economy to move in opposite directions. But something funny is happening in China: emerging market stocks continue to be tightly bound to what is now the world’s second-biggest economy, while China’s stocks have decoupled from it.
China’s economy officially showed 7 per cent growth in the first quarter of this year, the worst since 1992 apart from the three months at the start of 2009. More trust-worthy measures have followed the same pattern over the past five years: the Li Keqiang index, named after the premier, was dragged down by lower electricity and rail freight volumes, while commodity prices have tumbled.
All these measures moved similarly, and were tracked by emerging market shares. Broadly speaking, when China was doing well and sucking in commodities, the emerging markets that dig coal and iron ore out of the ground outperformed.