SAMT Blog
The battle between US and China stocks
16. June 2019, by Mario V. Guffanti
Technical Analysis
The US-China trade war is a subject of continuous analysis by professional investors, as it heavily affects the entire stock market. Today I would like to propose an analysis a bit 'different from the usual, but very direct: how is changing in recent years the relative strength ratio between the U.S. stock index S&P 500 and the Chinese stock market (represented by the index MSCI International CHINA A on Shore Index), and how all this can influence in terms of performance an asset allocation in euro that focuses on American rather than Chinese shares.
The following chart contains the Chinese index in the first frame, the American index in the second, and the relative strength of the two indices in the third. When the relative strength drops, the American market performs better than the Chinese one and when it rises, the opposite happens. In a light red field are indicated the periods in which one index performs less than the other.
In terms of relative strength, we can see that the Chinese stock market has been very strong in four periods (r1, r2, r3 and r4), and particularly strong in the period started in June 2014 (r1).
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