Sunday, September 13, 2009

Coupled global equity markets and return of the good times?

For all talk of the Great Recession and a financial market meltdown, the United States S&P 500 stock index has just completed its best six months since 1933, rising 53% in the period from March 9 to Sept 9, on the back of its worst performance since 1932 in the previous half year. This performance is mirrored across other equity markets, in both developed and emerging economies.

Interestingly, the equity market movements over the past year moved more or less in tandem across the world. In the first half, markets worldwide fell precipitously, and in the second half, they rebounded back sharply. This coupling of market movements, may also mean that with the global financial markets closely integrated, financial institutions may no longer have the ability of invest in different markets and thereby diversify their risks.

As the graphic shows, for the Sept 9, 2008-Sept 9, 2009 period, the Sensex has gone the full circle, S&P 500 remains 16% down, whereas China's CSI 300 is up 50%. Sensex has been among the most volatile of the markets (Turkey's ISE National 100 was the most volatile index), going down by 53% and up by 112% in the two half year periods. In sharp contrast, the Chinese equity markets have been the stablest, also a reflection of the limited exposure to foreign insitutional investors.

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