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Comparative: China Equities and Canadian Junior Resource Equities

Posted by nexvucapital on December 30, 2012

China is the largest consumer of most commodities on the planet. Over the past couple of years, China has been working to engineer an economic soft landing and it would appear they may have been successful (sorry dooms-dayers but enough already its been almost 30 years). Based on data in the latest quarter, the early stages of growth (Chinese style +7.5%) are emerging.

We decided to draw your attention to an interesting phenomenon which is the correlation between two extremely high beta equity markets. The Shanghai Stock Exchange (SSEC) seems to have recently broken out of a +20 month bear market. The confirmation will be a move through the overhead resistance at 2,500 on the index.

SSEC Weekly - December 29 2012

The S&P TSX Venture Exchange (CDNX) is the premier Junior Resource equity market in the world. You will note that the +20 month bear trend in this market has an extremely high correlation with the recent bear market trend in the SSEC. We are of the opinion that if the SSEC continues to reflect a move toward more normal growth in the Chinese economy (+7.5%) the CDNX presents a leveraged option for investors. China is the marginal buyer of most commodities and the CDNX is the home for companies that explore for and develop resources. A move to the 2011 high of 2,400 on the index would represent a 100% move.

SSEC Weekly - December 29 2012

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