On Friday I wrote an article titled “Geopolitics Influencing Prices” which outlined just some of the assets I am looking at with a possibility of geopolitical tensions developing even further in coming weeks. Something similar chart wise today, but here we will just focus on stock market indices and some huge divergences that are present around the world. I picked out just a few that stand out to me, but I am sure you could do a lot better job.
Chart 1 & 2: US stocks have outperformed the world for 3 years running
Chart 1 and 2 show very clearly how strong the US equity market rally has been and how well the US has done relative to every other region in the world. Starting with Chart 1, we can see that S&P 500 has almost doubled since October 2011 and has barley spent anytime below the 200 day moving average since January 2012.
Chart 2 does a great job showing us that US equities have outperformed MSCI World Index; Eurozone equities; Japanese, Chinese and rest of Asian stocks, Latin American indices, Eastern European equities and Africa stocks. Outperformance ranges from 25% to 80% over a three year rolling period.
Chart 3: FTSE has stalled at the important 7000 physiological resistance
UK stock market FTSE 100 rally has paused near the all important 7000 point physiological resistance zone for a year now. Whether the market is discounting the strength of the local currency (British Pound) or future dire economic prospects is unclear at present (it could be both), but one thing is for sure – while the S&P 500 has risen almost vertically in recent quarters, the UK counterpart has stalled out.
Chart 4: Bears are fascinated with China & yet the market isn’t falling…
When discussing risks in the global economy and macro investments, majority of the fund managers agree that China is the biggest worry and one majority lose sleep over. The bearishness has actually been intensifying over the last few years, and yet the Chinese stock market has actually failed to fall lower. Volatility has completely died out in 2014 and it seems a big move is coming soon.
The truth is, Chinese mainland stock market is incredibly oversold. After peaking in 2007 at around 6000 points, the index finds itself 66% lower 7 long years later. Furthermore, since 2009, Shanghai Composite has failed to staged a multi-quarter rally. Constantly bombard by bad news and a sideways trending market, investors have surely forgotten that Chinese stocks can actually go up, too.
Chart 5: Korean KOSPI has done absolutely nothing over the last 3 years
So there we have it. A market that's rising almost vertically and extremely overbought (US), a market that is meant to be rallying and yet has stalled out for a year now (UK) and a market just about every investor is negative on and yet it refuses to fall (China). Matters wouldn’t be complete without picking a market that has done absolutely nothing for 3 years now (South Korea).