World Markets Weekend Review: The East - West Divide

by: Doug Short

The holiday shortened week for most of our eight featured world indexes was dominated by one theme: The East rose and the West fell. Japan's Nikkei 225 continued its surge, up 4.58% (aided by the Yen's slide, down 10% in seven weeks). China's Shanghai Composite rose 3.71% for a gain of 13.95% for the month of December with one day of trading left. India's SENSEX and Hong Kong's Hang Seng both posted respectable gains. The four markets from the West all declined for the week, with the S&P 500 faring worst with a loss of 1.94%, an unsurprising decline as the US teeters at the edge of the Fiscal Cliff.

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 huge rally in recent weeks, the index is still down 35.67% from its interim high of August 2009. At the other end of the inset, despite its fractional loss for the week, the UK's FTSE 100 has regained the top spot from the S&P 500, thanks to the nearly two percent loss for the latter.

As for the 2012 performances, with one day of trading left, here is a table highlighting the year-to-date gains, sorted in that order, and the 2012 interim highs for the eight indexes. Four indexes have gains above 20%, and the Hang Seng and Nikkei are both at their 2012 highs. The stellar December performance of the Shanghai Composite has finally moved it into positive territory for the year.

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 look at the early days of 2013.

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