World Markets Review: The Rally Slows

For the fifth consecutive week, the average performance of the eight world indexes on my watch list has been positive -- this past week by 0.48%, down from the 1.2 plus percent averages of the two previous weeks. The top performer was Japan's Nikkei 225, up 2.08%. The S&P 500 was a distant second, up 1.17%, which was surprisingly strong given the political stalemate over the potentially traumatic financial impact of the year end expirations of tax cuts and deductions and the government's mandated spending cuts.

At the other end of the weekly performances, two Asian indexes on our watch list finished in the red. Hong Kong's Hang Seng slipped 0.44% and India's SENSEX was close behind at 0.39%. China's Shanghai finished with a fractional gain of 0.13%, which is a major shift from the four percent plus gains of the two previous weeks.

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 upward move in recent weeks, the index is still down about 38% from its interim high of August 2009. At the other end of the inset, the S&P 500 has regained the top spot from the UK's FTSE 100 by a tiny five basis points.


As for 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. Three indexes have gains above 20%, and three others have gains in the mid-teen percents. France's CAC 40, while down in 5th place, is the index closest to its 2012 peak as we enter the final days of the year. The Shanghai remains in the red but well off its lows a few weeks ago.

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 the 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).

I'll probably skip next weekend's update but post a World Markets year end update on New Year's Day.