NEW YORK ( TheStreet) -- If the potential removal of U.S. monetary stimulus wasn't enough of an excuse to sell riskier assets, this past weekend The People's Bank of China tightened liquidity measures, and on Monday, equity, commodity, and currency markets weakened to levels not seen since the beginning of the year.The first chart below is of iShares FTSE China 25 Index Fund ( FXI) over Vanguard Total World Stock Index ETF ( VT). The chart measures the relative strength of Chinese equities versus a basket of world equities. The pair has broadly sold off through much of 2013 as growth concerns, as well as structural changes to the Chinese economy, sent investors fleeing China-linked assets. That led to weakness in commodities and commodity-linked currencies. As demand for raw materials wanes in China, developing market exports decline. Tighter liquidity measures enacted by the PBOC came in the form of allowing the seven-day SHIBOR, the benchmark rate at which banks in Shanghai lend to each other, to rise toward unstable levels around 12%.
The last pair is of Vanguard REIT Index ETF ( VNQ) over Guggenheim S&P 500 Equal Weight ( RSP), which measures the relative strength of a REIT index over an equal weight basket of S&P 500 stocks. As Treasury yields rose and the yield curve steepened, this pair saw a large selloff. High-yielding assets, including dividend-paying products, lose appeal as rates rise. Although the pair sold off in recent weeks, it generally rises as equity markets decline. Due to their fixed-income features, real estate investment trusts tend to show strength in the face of a selling environment. That allows the relative pair to be a good predictor of upcoming volatility, much like the VIX.
At the time of publication the author had no position in any of the stocks mentioned. Follow @AndrewSachais This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.