Japan’s Nikkei index sold off 7% overnight on ugly China manufacturing news. But is this the beginning of the end for China and Asia, or just a short-term reaction after a red-hot market heads into a holiday weekend after some bad headlines?
A little of both, says Charles Sizemore. While winding down the short yen, long Nikkei trade is certainly a player here there are bigger demographic factors at play here beyond currencies and exports.
Specifically, the fact that China demographics are working against the workforce. The “one child” policy of the past has crippled the labor pool at a time when the transition from manufacturing to services and consumer goods is causing great pains.
But China demographics are hardly the only time bomb in Asia. Japan suffers different demographic scenario, but one that is equally dangerous for the economy: An aging population that is drawing down savings and will no longer support the rock-bottom rates Japan has enjoyed with its sovereign debt in the past.
Asia is in turmoil this week, but could be for a long time to come based on these trends.
Watch Charles and me talk it over above, and check out the links below for more details.
- Japan took a beating last night … so the short yen/long Nikkei trade might be over. (Bloomberg)
- Hedge fund guru Kyle Bass explains the short Japan bonds trade, known as the “widowmaker.” (Guru Focus)
- Does contracting manufacturing and GDP downgrades signal the hard landing is coming? (The Slant)
- 3 sectors that will be hit hardest by the China slowdown. (MarketWatch)
- Check out all the details of the China flash PMI, including waning exports and backlogs, or PMI readings from elsewhere in the world. (Markit Economics)
- Jim Woods thinks the FXI China ETF may be ready for a run, however. (InvestorPlace.com)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.