Chinese Stock Market Plunge

Chinese stock markets has been falling unabatedly since June 12th with the Shenzhen Composite Index leading the decline plummeting 38 percent. The crash has wiped off approximately $3.2 trillion off the markets – twice the size of India’s stock market. In order to stem the plunge of stock, 26% of firms listed on mainland exchanges suspended trading locking up $1.4 trillion worth of shares.

Incredible Accuracy in the Algorithmic Forecast

I Know First wrote an article on Seeking Alpha on January 2nd 2015 with an algorithmic forecast for the international indices in the then upcoming year. The algorithm, quite remarkably predicted the mass capitulation of the Chinese markets with incredible accuracy. The predicted movements of key international indices from January’s three months and one year forecast are listed below.

The map illustrated below is a useful tool in helping us make sense of the above data.

The algorithm projected that US equity markets will have very little volatility and growth next year – with the S&P 500 having minor signals of 0.53 an -0.31 and a predictability rating of 0.18.

The three most attractive markets the algorithm predicted was best to invest into were Singapore (NYSEARCA:EWS), India (NYSEARCA:EPI) and Taiwan (NYSEARCA:EWT). The signal of 20.65 and predictability of 0.53 suggests Singapore was the top pick out of the three.

The two markets the algorithm believed were best to avoid were Brazil (NYSEARCA:EWZ) and China (NYSEARCA:FXI), which had a very bearish outlook going into 2015.

It will be quite premature for one to evaluate the success of the algorithm with over five months left of the fiscal year, but, if the current trends the indices are going remain unchanged, then the algorithm would is on track to have had a ridiculously accurate one-year forecast.

100 % Accuracy Rate in 2014

If the indices continue at current trends, the 2015 algorithmic forecast is starting to mirror the top 10 world indices to buy forecast from 2014 – where the hit ratio was 100%. Not only that, the average return was 11%, an impressive achievement. On the left is our original 1 year projection from 2013 and on the right our performance review.

In five months’ time one can observe whether the 2015 forecast will match the incredible success rate of the 2014 forecast – as hard as it might seem the 2015 forecast could turn out to be just as accurate.

What Does This Mean for Apple?

It is a widely known that China is increasingly becoming Apple’s biggest market. In its most recent quarter, Apple (APPL) sold more iPhones in China then the United States for the first time and seventeen percent of the company’s total revenue came from China in the last fiscal year. Accompanied with a slowing demand for mobile devices, Apple Inc. could be quite vulnerable if China has an all-out economic crash.

So far, Apple has seemingly not been significantly affected by the Chinese plunge and have only lost 2.01% since June12th – not such an abnormal drop for a 25 day period.

(Source: Yahoo Finance)

I Know First’s latest algorithmic forecast predicts that AAPL stock would remain on an un-volatile in the upcoming year ahead.

The forecast is from the July 8th and predicts the next three months for Apple having a moderately bullish stock movement with a positive signal of just 12.45; whereas the one-year forecast has an even more neutral outlook with lowly signal of 6.36.

Based on the forecast, I would recommend Apple stock to be a “hold”, because as far as the algorithm is concerned, there is no scope for APPL making any significant gains or losses.

Investors should nevertheless bear in mind that Apple could be detrimentally effected if China’s economic health deteriorates even further. The company may even be forced to significantly roll back operations there and temporarily cut their mass expansion into the Chinese market.

It must be pointed out however, that it is pointless speculating whether China’s economic bubble could have finally burst or it could just be a small blip in their continuous economic growth at this early stage in the saga.

However, one thing is for certain though, Apple will be watching the developing situation in China very closely.



