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The latest rail freight data from China is sending a message to Canadian investors: Be cautious.

There is an extremely close relationship between the S&P/TSX composite index performance and changes in Chinese freight traffic. The numbers released Tuesday suggest continued weakness in China – the national economy that has driven profit growth for corporate Canada for the past decade – and the implications are not good for the TSX.

Rail freight for September is down 5. 1 per cent from a year earlier. The number is marginally better than July's terrible 8-per-cent slide but weaker than August's 3.7-per-cent decline.

Freight traffic is a key measure of an economy's strength because it's closely tied to the volume of goods that are being transported and thus provides a handy gauge of both factory output and consumer demand. Warren Buffett once said that if he were stranded on a desert island with access to only one economic data point, he would choose rail car loadings.

In China, rail freight data is particularly noteworthy because it is one of the cleanest economics reports available to outsiders. It is subject to less government manipulation than industrial production, gross domestic product or bank credit numbers.

The chart shows the remarkable correlation between Chinese freight traffic and Canadian stock prices. Most Canadians are aware that China's economy has an effect on domestic corporate earnings, but the high degree of dependence remains underestimated.

The most recent reading has one minor silver lining: the pace of decline appears to be flattening out. But the chart also indicates that a further downward adjustment in domestic stock prices may be necessary in the short term. The recent strength in Canadian stocks has not yet been matched by a stronger Chinese economy, suggesting that investors should remain wary until freight traffic indicators verify a more robust recovery.

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