Are Global Stock Markets Dancing to the Same Tune?

Factoring in last week’s stock market rebound, I have put together a table of global stock markets’ performances over various measurement periods and in both local currency and U.S. dollar terms. The numbers speak for themselves and can be summarized in a single sentence: Despite the variation in the economic impact of the credit crunch; the stock markets have mostly been dancing to the same tune.

The Wall Street “leash effect” remained paramount and stock market (as opposed to economic) decoupling nothing more than a myth.

As a result of the slide of the U.S. dollar over the different measurement periods, the performance of those stock markets where the local currency strengthened against the greenback (pretty much all markets) obviously look better once expressed in US dollar terms (see bottom table).

We are possibly in the midst of a tradable rally, but I do not know (and neither does anyone else) whether last week marked a major bear market low. In the words of David Fuller (Fullermoney):

The markets will provide the answers in their own good time.

Click on the image below for a larger table.

Click on the image below for a larger table

 

Comments

[TheYGuy:]

The arguments against decoupling are usually made on very fuzzy terms. What is "decoupling"? It seems, using your reasoning above, that we should say--looking, for example, only at the US market--oil stocks are "coupled" with gold since they've been moving in positive correlation.

But positive correlations are only normal in any integrated economy--whether national or international.

In any event, referring to your chart and the own terms of your argument, I'm not sure how strong your argument is for "coupling" when the range in YTD rates slides from -5.7 (Brazil) to -13.3 (DJIA) to -47.2 (Shanghai).

The fact that all stocks go down, says almost nothing about coupling. To get at the real issue, you have to look at economics which, as you seem to hint, points to the reality that real decoupling has taken place.

2008 Jul 21 11:03 AM

[yuman:]

The ideas are vague and analysis superficial. The table doesn't show anything definitive; it is qualitative at best. Look, US down 13%, Brazil up 4 % in USD terms. Is this decoupled, or dancing to the same tune?
There are statistical methods for calculating covariances and time lags. It is hard to tell a complex story with English verbage and tables.

2008 Jul 21 01:00 PM