The S&P Is At New Highs, Shanghai Is At New Lows — Jeff Gundlach Explains What’s Going On

By admin on August 21, 2012

The Shanghai Composite is basically at post-crisis lows, while the S&P 500 is basically at post-crisis highs.

The S&P vs. the Shanghai Composite is a chart that fund manager Jeff Gundlach is fond of observing, so we asked him his take on what’s going on.

He writes:

Strength is SPX and other “developed” stock markets reflects sentiment improvement regarding Europe versus the abject doom and gloom depths of late May/early June.

Weakness in SHCOMP reflects concern over slowing growth in China compounded by higher food and energy prices since late May/early June.

Since June 1 global “developed” stock market lows:

SPX price up 11.1%

SHCOMP price down 10.8%

IBEX price up 24.4%

The slow growth in China is much talked about, but the extra squeeze from high food prices is probably a bit less appreciated. Rich countries can handle a food price spike much more easily.

As a followup, we asked Gundlach if he thinks this divergence can last much longer

I doubt it. Thus short SPX long SHCOMP could be an interesting speculation. Probably a better trade today than the short SPX/long IBEX trade that has worked well since I recommended it at Ira Sohn (up 8.3% on the pair trade).

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