Amen feels that the recent fall in Chinese stocks has attracted the attention of investors and as such, he has investigated the relationship between large falls in Chinese stocks and other assets, notably in FX and more risk more broadly. Overall he finds that following large daily rises in Chinese stocks, there has been a tendency for out performance in S&P500 and AUD/USD during the rest of the day. He writes, “Historically, on days of large declines in Chinese stocks, S&P 500 and AUD/USD have risen more than average, suggesting some element of mean-reversion. More broadly we look at how the relationship between Chinese stocks and global assets has changed over time.” Amen notes that in general the relationship between S&P 500 and AUD/USD has grown stronger over time and that between Chinese Stocks and AUD/USD. At present however, following the OMT, the medium term positive correlation is fairly low in both cases.
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