The nine-year link between Australian and Chinese stocks is breaking down.
The CHART OF THE DAY shows the 120-day correlation between the S&P/ASX 200 Index and Hang Seng China Enterprises Index reached 0.3 last month, the lowest since December 2004, compared with an average of 0.6 over the period. A reading of 1 would indicate the two assets are in lockstep, while zero would represent no relationship.
Investors are speculating Australia's economy will withstand a slowdown in China, its biggest trading partner, as record-low interest rates boost consumer spending, hiring and house-building amid a drop in mining investment. The price of iron ore, Australia's largest export, fell 13 percent last quarter as Chinese demand for the steelmaking ingredient waned.
"We are starting to transition away from Australia's reliance on China," said Shane Oliver, who helps oversee about $130 billion as Sydney-based head of investment strategy at AMP Capital Investors Ltd. "The Reserve Bank of Australia has taken the brakes off and that's ultimately led to confidence in a rebalancing of the economy away from mining. We've disconnected from the Chinese share market."
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