China Markets vs. U.S. Markets: A Look Into The Future

China was ahead of the U.S. in providing the initial stimulus during the financial crisis of ’08/’09. Considering how their markets have performed since may give us some insight into what may be ahead for U.S. equity markets.

The chart above shows the Shanghai Exhanges and the S&P 500 index offset by 10 months. The offset is the time between China’s massive stimulus package, announce on November 9, 2008. China pledged over $585 billion to kick start their economy through a series of intiatives. The stock market exploded to the upside.

If we now adjust the S&P 500 by the time it took the U.S. to provide the first pledge of stimulus, the two markets match up pretty well. If the correlation continues, the S&P 500 would need to approximately pull back another 17% to meet the same levels as the Shanghai Index of today.