World Markets Weekend Review: 7 Big Declines, 1 Major Gain

by: Doug Short

For seven of our eight benchmark world indexes, last week was another big downer. That's two weeks in a row of significant losses, which breaks the pattern of alternating gains and losses. The sole index with a gain, and a substantial one, was Japan's Nikkei 225, up a whopping 3.04%. At the other end Germany's DAXK was nearly equidistant below the flatline, down 2.97%. All of the other indexes essentially imitated Germany's behavior. In the four-week table below, we see a weekly average of -1.54% for the eight indexes. But if we exclude the Nikkei rally, the average plummets to -2.19%.

What accounted for Japan's amazing market performance? Bloomberg correctly explains it here: "Japan's Nikkei 225 Stock Average surged the most in two months amid speculation an election next month will hand power to an opposition party that advocates more economic stimulus."

In my last two world markets update, I've used a roller-coaster metaphor to characterize the collective index behavior: A weekly alternation between gains and losses. The past week has now broken the pattern with two losing weeks in a row. Here is a snapshot of the weekly average of the eight for the past eight weeks:

-1.31%, 1.36%, -1.42%, 2.02%, -1.38%, 1.48%, -2.25% and -1.54%.

This week two indexes on the watch list are 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 Shanghai Composite, the chronic big loser, is now down 41.96% from its interim high of August 2009. Japan's Nikkei is the other bear-market index, although last week's blowout gain trimmed the decline to 20.09% below its interim high of April 2010. At the other end of the inset, the S&P 500 is now 7.22% off its interim high, set in mid-September, the day after QE3 was announced. The FTSE 100 is close behind at 7.97% from its interim high of February 2011.

As for year-to-date performance, here is a table showing the 2012 peak percentage gains, sorted in that order, and current YTD gains for the eight indexes. The Hang Seng remains the top performer, although the selloff dropped the index 3.14% from its YTD high set seven sessions ago. In contrast, the Shanghai continues to hold grim distinction of being the only index with a YTD loss, and a nasty one at that. We see the UK's FTSE 100 is just fractionally above a 2012 year-to-date loss.

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.

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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.

Click to enlarge

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).