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Focus: China

The MacroReport: Focus–China issue, published April 23, 2012, considered the effects on China's economy of a combination of four broad issues: (1) the widening of the yuan trading band, (2) a slowdown in China's growth, (3) the impact of a deteriorating European economy, and (4) a number of trade issues.

Broadly speaking, the possible outcomes include a Soft Landing, a Hard Landing, and Trade Wars. The three economic scenarios were constructed by considering changes in each of the driving factors as shown in the "scenario box," below.

The assets that were selected as proxies to best reflect trends within the multiple scenarios include copper, as a proxy for manufacturing sector in China; the Australian dollar, to reflect China’s infrastructure; and price of grains, which has a strong impact on both short and longer term GDP.

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China: Comparing Scenarios
China: Optimized ETFs
China: Optimized S&P 1500

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China Scenario Box
SCENARIO BOND YIELDS EQUITY MARKETS COMMODITIES CURRENCIES INFLATION & MONEY REAL ESTATE GDP
10-Year Treasury S&P 500 VIX
Market Volatility		 Price of Grains Price of Copper Price of Oil Australian Dollar U.S. Dollar Euro PMI CPI Gold Prices REIT Index
Soft Landing Falls Rises No Change Falls No Change No Change Rises Falls No Change Rises Rises Rises No Change No Change
Hard Landing No Change Falls Rises Sharply No Change Falls Sharply Falls Falls Sharply Falls Sharply Rises Falls No Change No Change Falls Falls
Trade Wars Rises Sharply Falls Rises Falls No Change Falls Falls Falls Rises Falls Rises Rises Falls Falls
Source: MacroRisk Analytics
These changes were then analyzed in terms of their impact on a set of 18 MacroRisk Factors, developed by MacroRisk Analytics, and from there, on the Indexes and ETFs that are being analyzed.

Here's a comparison of the current economic conditions for these three scenarios with the conditions that existed at the time of the report's publication (April 23, 2012), and an update of the Optimized ETF Portfolios and our QuickResponse Stock Portfolios.

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