Charting Cycles in Global Indices

As the Dow Jones Industrials Index hits a new all time high of 14,320 today (exactly on the four-year anniversary of the 12-year lows known as generational low), here are a few facts worth bearing in mind.

1. The Dow-30 may have hit new highs, but its 115% rally from those March 2009 lows is less than the NASDAQ and S&P500, which are up 148% and 125% respectively;

2. The above fact is partly explained due to the technology fuelled rally of the past year led by the likes of Google and Apple.

3. In Europe, both of the Dax-30 and FTSE-100 reached their cycle lows on March 9, 2009. To date, the Dax is up 114% compared to 81% for the FTSE. Like its US counterpart, the DAX is a modest 2% away from its 2007 high, but unlike those indices, the German index stipulates that its member companies derive their revenues from within Germany. This shields the index from global headwinds as may be the case of the FTSE-member companies, whose international exposure tend to be more sensitive from synchronised slowdown.

4. The Nikkei-225 and Bovespa highlight key differences. Considering Japanese PM Abe’s aggressive approach to reflate the economy by breaking the vicious cycle of deflation, which prevailed in six of the last 10 years, the negative consequences on the yen may only empower the Nikkei further. The Nikkei’s 56% increase from the 2008 lows is the biggest rise sustained by the index since those generational lows. Last year’s 23% increase was the first annual rise since 2005. Comparing Japan’s early stage of an aggressive easing policy to Brazil’s two-year rate-cutting campaign (which appears to near its end), the Nikkei’s upside may just be getting started.

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