There have been various discussions all over about Asia decoupling from the West. China trying to spend big to stimulate domestic consumption etc.I'm not really interested in re-hashing on a quant forum whether this will happen, time line if it will or that sort of thing.Question is more, how would you measure if it is/has/is doing so. Can assume benchmark indices and measures of each/between, other more economic type stuff such as GDP, surpluses/deficits etc.Any thoughts?

A couple of aggregate metrics might include:1. Magnitude of imports and exports relative to GDP. This measures the extent that economic output (jobs) or critical inputs derive from outside the country. The combined magnitude (not the net surplus/deficit) is the more useful measure of coupling because a country might have a perfect balance trade (i.e., $0 trade surplus) but be entirely dependent on importing large amounts of materials and exporting large amounts of finished goods.2. % of total corporate total or incremental investment that's derived from foreign investment. This measures the extent that the economy is self-funding. This measure also reflect the potential sensitivity of the country to currency crises due to withdrawal of foreign capital.The larger issue is that coupling can't be entirely measured by aggregate values -- two countries could have identical values of the aggregate metrics, but one country might be far more susceptible to fluctuations in the external macro-situation. For example, if a country has 100% global marketshare in widgets, then almost all the jobs and economic activity associated with that industry will be dependent on the kindness of outside buyers. Moreover, if widget manufacturing resides in a compact geographic subregion of the country, then that subregion might be economically devastated if the outside world stops buying widgets even if widgets are a relatively small part of the country's GDP.

Thanks. Good points.Over time do you think stock market indices have any relevance or the relationship between them?China is trying to increase domestic consumption, some think it will work, some don't (long term - you can always buy a bit of growth), is MCSI vs S&P useful and how - returns, correlation?Thanks

Unless countries enact strong protectionist rules against global trade and global flows of capital, correlation will probably increase. Because all countries buy and sell on global commodity markets, they have correlated cost and revenue structures. Sure, there will always be some differences in which some countries are positively or negatively correlated with certain commodity prices (especially oil), but the total system is fairly tightly coupled by the decreasing cost of global transactions. Finally, most large public companies are global -- they may be listed on exchange X, but they have operations and revenues in other countries which makes the stock price of the company correlated to the economic conditions of those other countries.China's plans may work, but they hinge on the subtle difference between encouraging consumption versus creating consumer demand. If Chinese consumers simply divert existing cash or cash flows (e.g., long-term savings) to short-term consumption, then the policy will simply be shifting economic activity from the future to the present. If China can create true demand -- in which people are eager to work harder, longer, or smarter to make more money to afford more total short-term and long-term purchases, then the total economy will really grow. The former strategy might help buffer a slow period in exports but the latter strategy creates the motivation for true, long-term economic growth.