Bearish Signals from China - 15 December 2011

The bears seem to winning the China debate...

THE BEARS are beginning to get the upper hand on China, writes Brian Hunt for Steve Sjuggerud's Daily Wealth.

One of the world's biggest financial debates revolves around China. Some world-class analysts and traders, including Jim Chanos, say the country is a powder keg of horrible government malinvestment... which will cause a huge economic slowdown. 

Chanos is shorting Chinese stocks and commodity firms that sell production to China (watch his commentary from last week here). 

On the other hand, you have many "China bulls," who say the bearish arguments are overblown and overhyped.

As always, we say, "Understand both sides of the debate... but always mind the market. The market is the judge, jury, and executioner of all ideas." The market, in this case, is starting to side with the bears...

Above is a two-year chart of the Shanghai Stock Exchange Index. It's one of the most widely used gauges of Chinese equity prices. As you can see, the index is struggling. It's down 18% on the year... and just this month, it broke down to a new two-year low. The market is casting its "vote" with the bears.

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