We wanted to evaluate the peaks and troughs in the Chinese Shanghai A share stock index and see how they compared with the US benchmark (S&P 500). The Shanghai index defines how a “high octane” market performs. What we did was look at all the major peaks and troughs in the SHASHR index and see for the exact same period how the US market performed. We were surprised by the results.
Keep in mind that what occurred during the past 15 years (pay attention to timing):
- On a total return basis the US equity market had no negative returning years in the 90s. The Shanghai market on a calendar year basis was down -21% in 1994 and -14$ in 1995. The major bottom however occurred in July 1994.
- The LTCM crisis and Russia default in 1998 was a blip on the screen in the long term bull market of this period.
- The US officially entered into recession in 2001, but the TMT bubble burst in March 2000. After declining nearly 50% the US equity market bottomed out in March 2003 (October 2002 had a false bottom!) and began a multi year bull market till the end of 2007.
- The financial crisis was a multi year event but most major Equity markets peaked in October 2007. The US equity market had a false bottom in late 2008 then had a mini rally til the lows were retested in March 2009 (where the major bottom was formed).
China versus the US (local currency) The first major market correction from 2001 through 2005 coincidede with a positive return in the US market. The next bull market run from 2005-2007 in Shanghai was met with a modest +30% return in the US market - note it already had a huge runup. The financial crisis and subsequent market recovery showed a very similar tune. Taking a step back for a second, we wondered how Brazil performed during these times: Brazil, US and China ..... local currency
