Sunday, April 4, 2010

World Market Indices

 One Road, but Different Destinations...!

 The Story

Once up on a time, when the train services were introduced for the first time in a state, there was only a single line in the north south direction. Our hero, a simpleton, traveled on the train for the first time from the south to the north. The train had to pass through a big station in the center of the state. The north bound train stopped at that station for refreshments and the crossing of the south bound train.

Our hero explored the station for sometime and entered a train for the onward journey. He tried to enter in to conversation with a  nearby passenger by asking, ' Where are you going ?'

The passenger answered : 'I am going to the south. By the way, where are you headed ?'

Our hero : ' My God...! This railway is a miracle....! I am going to the north and this train takes us both to north and south simultaneously....!'

( Our hero didn't know that he re-entered the wrong train at the crossing station. )

This story is still relevant in investment and trading. The following is a comparison chart of BSE Sensex, FTSE and Nikkei covering a five month period. The FTSE and Nikkei are trading at new 2010 highs. Sensex has not crossed it's Jan. 2010 high.  The Jan. 2010 highs are marked by the horizontal lines in the charts.  Major world indices, Dow, S&P 500, Nasdaq Comp, DAX, CAC etc are all trading above their Jan. 2010 highs at present. However, the Shanghai, Hang Seng and Taiwan indices are trading below their Jan. 2010 highs. The lack of performance of the Chinese market may be explained by the extreme valuation level of a whooping 47 times trailing PE it achieved in the late 2007 period. Indian markets have seen this kind of extreme valuation only in the 1992 Harshad Mehta induced boom. Our markets could recover from the excesses of the then bullish frenzy only after the passage of a long time. The Japanese markets are also suffering from the effects the extreme boom it had in the 1989 - 1990 period and are yet to recover.

BSE Sensex, FTSE & Nikkei - Daily Chart

 You can click on the table to enlarge. Top - Sensex, Middle - FTSE & Bottom - Nikkei
Our market seems to be just hesitating to cross the Jan. 2010 high. However, the purpose of this post is to invite the attention of the reader to the similarity of the daily charts from the three totally different economies. In the short term time frame of a trader, all these markets are trading in similar direction. Even if the Indian economy is having the second highest growth rate in the world, our market is behaving just like the other world markets which represents different economic conditions.

Businessline reports that " Indian equity indices are moving perfectly in step with most other global markets, a correlation analysis of weekly changes in MSCI India index with that of other MSCI indices from January 2008 to date shows." The report also says that the correlation between the Chinese and the Indian markets are weakening.  

Now, let us check out the direction of these three markets for a twelve year period.     

BSE Sensex, FTSE & Nikkei - Monthly Chart

 You can click on the table to enlarge. Top - Sensex, Middle - FTSE & Bottom - Nikkei
The long term direction of the three markets are shown in the charts itself by the regression channel lines. It is seen that major indices of the developed economies have not been delivering returns to the long term buy and hold investors for even a period of twelve years.

( Yeah...! "In the long term we are all dead.." Keynes. )

But for traders, it does not seem to matter much in which market they are trading because in  the short term all the markets are trading similarly.

Let us all say : " My God...! These markets are  miracles....! We  are all trying to go north but these markets take us all to the north and south simultaneously....!"


Cheers and Prosperous Investing and Trading!!! 
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