So Credit Default Swaps are getting increasing airtime in Asia these days as a proxy for how %$#%-ed up our capital markets are out here, so I thought it would be interesting to see what they would tell us about where equity markets might be going, given that we've been seeing a sustained pickup in swap rates out here for the last 6 weeks or so.
Plotting the rolling 1 month % change in the MSCI Far East ex-Japan index against the Itraxx Asia Investment Grade index from JP Morgan (via BB) it actually looks like levels above about 150 on the index is a good flag for a correction in the equity markets in coming months. (Short history, so obviously not statistically significant - and of course, it's just one factor etc.)
At least, it was over the last year - THIS round, it looks like the equity markets have jumped the gun out here in Asia and... is it really possible... may have already priced in these and maybe even higher levels of credit market stress??
Shome mishtake, shurely?
Stumble It!
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