World Markets Weekend Review: A 3-Week Rally

by: Doug Short

For the third consecutive week, the average weekly performance of the eight world indexes on my watch list has been positive -- this past week by an impressive 1.25%. But the latest average smooths a considerable range. The top performer was the Shanghai Composite, up 4.12% for the week after a loss of 2.33% the previous week. Actually the Shanghai story is more dramatic than the weekly close suggests. On Monday the Shanghai hit an interim low at a level not seen since January 2009 (see chart). Was last Monday a secular bottom, a cyclical low, or a dead cat bounce? On a personal note, I think the first is unlikely, and as a cat lover I find the third repugnant. That leaves option two.

At the other end of the wide range of weekly performances is the S&P 500, an index that is playing a trading game based on cues from a dysfunctional congress dealing (or not) with the Fiscal Cliff, Slope or whatever you want to call it. The 500's fractional gain of 0.13% for the week came in the last 30-minutes of Friday's trading.

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. Despite its big rally last week, the index is still down over 40% from its interim high of August 2009. At the other end of the inset, the FTSE 100 has bumped the S&P 500 from first place and is now a mere 2.90% from its interim high, set in February 2011. The S&P 500 is close behind at 3.25% from its interim high of September 14th, the day after QE3 was announced.

As 2012 performances, here is a table highlighting the year-to-date gains, sorted in that order, and the 2012 interim highs for the eight indexes. India's SENSEX has the top spot, up over 25% for the year and sitting close to its YTD high. Germany's DAXK is in second, with the Hang Seng not far behind in third place. In contrast, the Shanghai continues to hold the dubious distinction of being the only index with a YTD loss, down over 6%.

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.

Click for a larger image

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).

Click for a larger image