Could China's Stock Market Plunge Be Predicted?

Looking back at China's stock market plunge, there's one question left on analysts' minds: Were the warning signs there?

That's the issue that The Wall Street Journal tackled in a recent piece that examines if investors missed the boat on the signs that may have shown what was to come for China's economy. This means starting with the slowing exports of West Coast ports that could have foreshadowed the slump, some analysts say.

With some of the major West Coast ports producing as much as 40 precent of the trade between the U.S. and China, there certainly had to be signs, one trade adviser suggested. Simply looking at the trade patterns should have been enough to catch what was really going on starting in 2013 when the port slowdown from China's end began.

“A couple of years ago, everybody was still agog about the growing, burgeoning economy in China,” said Jock O'Connell, a California-based trade adviser who has been studying the docks for more nearly three decades. “I started looking at our export figures to China and thought maybe we’re doing something wrong.”

And then last week happened, when the global stock markets dipped and the news media began tossing around the term "Black Monday" again. The reality was as clear as ever last Monday (Aug. 24) that China, No. 3 in the world's economy, had hit a significant slowdown. Now that leaves investors and analysts scrambling to see where, and how, the warning signs were missed.

While the years prior to 2013 showed signs of promise for China's economy, the year 2013 set in motion a shift that may have led to what everyone saw hit the markets last week. WSJ's report indicates that China’s Ministry of Industry and Information Technology forces companies to cut production levels, but that didn't quite slow the shipment of goods into the U.S. Meanwhile, the domestic demand likely curtailed, the report said.

But, of course, China isn't known for being transparent about its economic problems.

“Throughout last year, a lot of people said, ‘We hear some negative news, but look, the stock market is doing well, so something must be good,’ and they dismissed the signs of a serious slowdown,” Patrick Chovanec, chief strategist for Silvercrest Asset Management Group, told WSJ.

Clearly, the signs were missed, but that doesn't mean the state of the global economy is as bad as some investors and analysts are suggesting, Chovanec said.

“First of all, you should have been paying attention to this much earlier, but if you paid attention, you’d have come to the conclusion it’s a very disruptive adjustment for China but by no means an entirely negative one for the world," he noted in the interview.

But for now, China's stock slump has forced investors to be a little more aware that the global economy is impacted by more than just the U.S. markets. With China securely hanging on to the No. 2 slot in the world's economy, it's clear that everyone is going to be paying attention to China's moves quite a bit more.



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