Canada’s future looks just dandy compared to the U.S. with our still-strong property market, trade surpluses and army of pierced coffee barristas. Surely what’s happening down there could never happen up here. But is our success because we’re so good at what we do or is there something else going on? If we’re so special, then how come the performance of the Canadian and Australian stock markets is virtually indistinguishable? Are they special too?

If you don’t know or care to know the answer to that question then maybe you are special — only a different kind of special. The kind of special that might one day be serving me my grande-non-fat lattes after you’re laid off and your investments collapse.

The reality is Australian and Canadian stock market indices are virtually indistinguishable because both countries are major global commodity exporters. OK – cool. So why should you as a Canadian investor care?

1. As “commodity” markets, Australia and Canada’s good fortunes are a function of continued strength in commodities.
2. Roughly 3/4 of the world’s incremental commodity buying is coming from China and India.
3. Global asset allocators (the guys who control the big money flows) know this and simplistically trade the stock markets accordingly.
4. Money flows into a country’s stock market can ultimately have a big effect on the country’s economic well-being via the wealth-effect.

And what does that mean? It means that if you want to understand the risks at play for your RRSP, your job and your 387 sq ft condo, you need to understand what’s happening in China/India. Now you could nod complacently when your 25-year-old property agent/financial adviser tells you that we’re still in a bull market or you can open your eyes. Which is why this chart of China and India’s stock markets scares the hell out of me:

Is this a technical correction or the end of the China/India bull market? Because if they’re cooked, then what does that say for Canada’s outlook?