Below excerpt from Dec 10 edition of global macro strategy newsletter “Sight Beyond Sight” includes insight for those tracking events in Asia and China-related ETFs. When scrolling to the bottom of this post, MarketsMuse readers will appreciate why we regularly cite the Sight Beyond Sight newsletter—the conclusion of this post displays the out-performance of SBS publisher Rareview Macro LLC’s model portfolio.

“…Using the ETF’s as a proxy for the spot currencies, the pressure point in the Currency Shares Japanese Yen Trust (symbol: FXY) is closer to 83.15 (vs. last price 81.85) and the Euro Currency Trust (symbol: FXE) is closer to ~122.50 (vs. last price 122.00).

There are three major points we would like to make after the overnight price action in China.

The first is liquidity related and what actually drives that stock market. The second is inflation related and looks at what, at least partially, drives the rest of the world. The third is a rebuttal to the “bomb throwers” who continue to suggest that China has entered a phase of deliberately debasing its currency.

At no point during the recent stock market rally has any dogmatic bear on China been willing to concede that the stock market (i.e. liquidity) and the profit cycle (i.e. deflation) during cyclical episodes, such as the one we are witnessing right now, can have a meaningful divergence.

But they should note that the last time the SHCOMP outperformed the H share index due to an A share rally was back in 2006 and came at the start of rally of more than 200% for both indices and from a PE level that was more than two times the current levels. (Hat Tip: Aviate)

Additionally, with Macau struggling, real estate still contracting on aggregate, and Gold a weak trading tool, the stock market is the “vogue thing to do” at the moment. Fashion is important in China, just like anywhere else. more