World Markets Update: Mixed Bag With Another Nikkei Plunge

Three indexes on my world watchlist ended the month of May with modest weekly gains. China's Shanghai Composite was the top performer with a 0.53% advance. Germany's DAXK and India's SENSEX finished second and third with 0.36% and 0.28% gains, respectively. France's CAC 40 posted a fractional loss, and three indexes hovered around minus one percent. But Japan's Nikkei again posted a massive loss, down 5.73% for the week, and this on top of last week's 3.47% decline.

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. The index is down 33.73% from its interim high of August 2009. The S&P 500 remains closest to its interim high (which is its all-time high) with the DAXK close behind.

Here is a closer look at the YTD performance, which, more than anything, illustrates the power of Abenomics to levitate the Land of the Rising Sun to its interim high on May 22. Six sessions later the index had dropped 13%, but Friday's rally trimmed the correction to 11.9%. What will the weeks ahead bring. Was the 13% plunge a healthy correction? Or are we witnessing the downside of a bubble?

Here is a table highlighting the 2013 year-to-date gains, sorted in that order, along with the 2013 interim highs for the eight indexes. The strong performance of the Japan's Nikkei over the past few months, despite its correction, puts it solidly in the top spot with a 32.51% YTD gain (but a whopping 17.82% off its 2013 high). The Hang Seng has the sole distinction of a negative YTD performance, although it is a modest -1.17%.

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 new update.

Note from dshort: I track Germany's DAXK a price-only index, instead of the more familiar DAX index (which includes dividends), for constency with the other indexes, which do not include dividends.