World Markets Weekend Update: The Rally Takes a Pause

Courtesy of Doug Short.

After four weeks on steroids, the worldwide rally took step back, a big one for Japan’s Nikkei 225. Seven of the eight indexes on my watchlist posted losses. China’s Shanghai Composite was the one index to show a gain for the week, a rather unimpressive 0.25%. Four seven losers gave back between 1% and 1.25%. Hong Kong’s Hang Seng dropped two percent, India’s SENSEX slipped a more dramatic 2.87%, and the Nikkei plunged 3.47%, which, of course, was little more than a rounding error, since it was up 45.6% at the previous weekly close.

The Shanghai remains the only index on the watch list in bear territory — the traditional designation for a 20% decline from an interim high. See the table inset (lower right) in the chart below. The index is down 34% from its interim high of August 2009. Last week, at the other end of the inset, four indexes, had set new interim or all-time highs. This week, none could claim that accolade.

Here is a closer look at the YTD performance, which, more than anything, illustrates the power of Abenomics to levitate the Land of the Rising Sun, at least until Thursday’s -7.32% selloff. Last weekend I jested that I hope my reference to the Rising Sun wouldn’t in retrospect seem like an allusion to a Japanese version of the myth of Icarus. Is Japanese Prime Minister Shinzo Abe the Daedalus who crafted artificial wings for his country? Daedalus’ son Icarus flew too close to the sun with those artifical wings. The wax holding them together was melted by the sun’s heat and he plunged to his death.

Here is a table highlighting the 2013 year-to-date gains, sorted in that order, along with the 2013 interim highs for the eight indexes. The strong performance of the Japan’s Nikkei over the past few months, despite last week’s setback, puts it solidly in the top spot with a 40.57% YTD gain. The Hang Seng has the sole distinction of a negative YTD performance, although it is a tiny -0.17%.

A Closer Look at the Last Four Weeks

The tables below provide a concise overview of performance comparisons over the past four weeks for these eight major indexes. I’ve also included the average for each week so that we can evaluate the performance of a specific index relative to the overall mean and better understand weekly volatility. The colors for each index name help us visualize the comparative performance over time.

The chart below illustrates the comparative performance of World Markets since March 9, 2009. The start date is arbitrary: The S&P 500, CAC 40 and BSE SENSEX hit their lows on March 9th, the Nikkei 225 on March 10th, the DAX on March 6th, the FTSE on March 3rd, the Shanghai Composite on November 4, 2008, and the Hang Seng even earlier on October 27, 2008. However, by aligning on the same day and measuring the percent change, we get a better sense of the relative performance than if we align the lows.

A Longer Look Back

Here is the same chart starting from the turn of 21st century. The relative over-performance of the emerging markets (Shanghai, Mumbai SENSEX, Hang Seng) is readily apparent, especially the SENSEX, but the trend over the past two years has not been their friend (make that three years for the Shanghai).

Check back next week for a new update.