The blog’s 6-monthly review of global stock markets highlights the narrow nature of the advance since September 2008, when the blog first began analysing developments. It shows their performance since the pre-Crisis peak for each market, and the performance of the US 30-year Treasury bond.
Remarkably, only the US, India, Germany and the UK stock markets are in positive territory, along with the 30-year bond. Japan, Brazil, Russia and China remain well below their previous peaks:
- The 30-year bond remains the best performer, as investors fear that a sustained economic recovery remains as far away as ever (purple line)
- The US had been the best stock market performer till now, driven by the US Federal Reserve’s belief that a strong stock market would spur economic recovery (green)
- India has now become the best performer, due to hopes for broad economic reform from the new Modi government (black)
- Germany is next, supported by hopes the European Central Bank will continue to follow the Fed’s low-cost money approach (orange)
- The UK has just slipped into positive territory, also supported by Bank of England stimulus (pink)
A number of major markets remain in negative territory:
- Japan strengthened in 2012 as the Abe government followed the Fed’s policy, but has recently seen a slowdown as GDP fell in Q2 (blue)
- Brazil had weakened, despite the World Cup and 2016 Olympics stimulus, but recent polls lead investors to hope for a change of government next month (brown)
- Russia’s recovery also ended rather early, despite the boost from high oil and commodity prices, and Ukraine developments have caused it to move sideways (red)
- China’s market has never seen a recovery, as investors have preferred to speculate in the housing bubble, where prices have been doubling every 2 – 3 years (blue)
All-in-all it is hard with the benefit of hindsight to argue with September 2008’s conclusion, as the storm began to break:
“This pattern seems to confirm the blog’s long-standing concern that we may now be facing a multi-year global slowdown, as the financial excesses of the 2003-7 boom are unwound.”
Those markets where there has been little direct central bank stimulus have found it very hard to recover. This is quite contrary to the pre-2008 experience, when ‘a rising tide lifted all ships’.
The blog will look in more detail at the US equity market next week, as it concludes its mini-series on the Great Unwinding of stimulus policy now underway.