China Rising: THE MARKET for Exports

We thought these charts of export markets from Barclays Capital to be very illustrious of the dynamic changes taking place in global trade.  China is becoming a larger export market than the U.S. for many countries, including Australia, Brazil, Korea, and Japan.   Given China’s voracious appetite for natural resources, it is not a surprise to see Brazil exporting more to China, even though it is not part Asia.

We thought it would be interesting to analyze the correlation between Brazil’s Bovespa stock index versus the S&P500 and the Shanghai Composite to see if this trend is internalized in the domestic financial markets.

Trading data of the past calendar year do not confirm this as the Bovespa remains more correlated with S&P500 than the Shanghai composite.  The Bovespa moved together 174 days with S&P500 versus 138 days with the Shanghai, for example.   The table also shows that there were 150 days where the Bovespa and S&P500 30-day correlation had readings greater than .8 against 72 days for the Bovespa and Shanghai Composite.

China’s relatively closed capital account keeps it somewhat immune from global stock market volatility.  The different time zones during the trading day may also play a role.  We expect the Shanghai to become more correlated with all markets as they liberalize their capital account, however.

As China becomes a more important market than the U.S. for many countries’ exports, the the relative influence of the U.S. in the international financial community diminishes. This was clearly evident at the G20.