Stock Markets Years & Decades after Huge Bubbles Imploded: China, Hong Kong, Japan, UK, France, Germany, Italy, and Spain

This can't happen to US markets because US markets are special?

By rich wolf for WOLF STREET.

Most major stock markets globally are up in 2023, some a lot, but many of them are still below their all-time highs from 15, 20, or 35 years ago, while others are barely above those all-time highs of 15, 20, or 35 years ago. a generation ago.

It was a fun year for US stocks, with seven great stocks dominating the markets, with the Dow and Nasdaq 100 hitting all-time highs, while the S&P 500 finished just shy of its all-time high from two years ago, while the Nasdaq finished slightly below its all-time high in November 2021, and the Russell 2000, which tracks 2,000 smaller stocks, finished where it was three years ago. We discussed all this on Friday.. I mention this because the US markets have been among the exceptions, not the norm in terms of global stock markets.

First a basic rule here. Stock markets are valued in local currency. When the purchasing power of that currency falls due to inflation year after year for decades, then stock indices are a reflection of inflation rather than corporate performance. The 1,700% rise in Argentina's Merval index in three years, from about 51,000 in January 2021 to 930,000 now, is a sign of the collapse of the peso, and not of corporate performance. Let's ignore those markets. We're going to stick to the main markets of the largest economies that have had relatively stable currencies and relatively low inflation: inflation of 6% year over year is relatively low compared to 160% year over year (Argentina).

The huge bubbles caused long-term declines.

Yes, we all know, this can never happen in US markets because US markets are special. It did happen in US markets, however, when the Nasdaq plunged 78% during the dot-com crisis from March 2000 to October 2002, and then did not return to its March 2000 high until 15 years later, until October 2015, and It only did so because of the huge amounts of money printing and 0% interest.

Money printing and 0% were an option back then because inflation was below the Fed's target; Inflation was low in all developed economies. Now inflation has re-emerged in all developed economies, there has been an inflationary shock and we are in a different ball game.

China's Shanghai Stock Exchange (SSE), where it was 17 years ago:

• The year closed in 2,974
• Year over year: -3.7%
• Since October 2007, all-time high: -51%
• Back to where I had first been in January 2007

Hong Kong's Hang Seng Index (HSI), where it was 24 years ago:

• It closed the year at 17,047
• Year over year: -13.8%
• From January 2018 all-time high: -48.6%
• Back to where I had first been in January 2000.

Japan's Nikkei 225 (NIK) is back where it was 35 years ago:

• Closed 2023 at 33,464
• Year over year: +28%
• From the all-time high in December 1989: -14%.

It took a huge amount of money printing from 2012 onwards under Abenomics to get this index to recover. Now inflation has returned to Japan and QE has been systematically reduced and will probably end completely in 2024:

UK FTSE 100 Index (FTSE), +12% over 24 years.

• It closed the year at 7,733
• Year over year: +3.8%
• From historical maximum in February 2023: -3.6%
• Since December 1999 maximum: +7%

French CAC 40 Index (PX1), +9% in 24 years.

• It closed the year at 7,543
• Year over year: +16.5%
• From March 2000 high: +9.0%

Germany DAX Price Index (DAXK), +7% in 24 years.

The most cited German stock index, the DAX, is a “total return index” that includes dividends and is therefore not comparable to a “price index,” such as the S&P 500 index, which does not include dividends.

The DAX Kursindex (DAXK) is a price index, does not include dividends and is comparable to the S&P 500 index and all stock indices here. So that's what we'll use.

• It closed the year at 6,628
• Year over year: +15.2%
• From all-time high in January 2021: -3.6%
• Since March 2000 maximum: +7%

Spain's IBEX 35 index (IBEX) is back to where it was 26 years ago:

• It closed the year at 10,102
• Year over year: +22.8%
• From all-time high in December 2007: -36%
• Back to where I had been for the first time in 1998

Italy's FTSE MIB index back to where it was 26 years ago.

• It closed the year at 30,352
• Year over year: +28%
• From March 2000 all-time high: -39%
• Back to where I had been for the first time in 1998

On the contrary, Canada's TSX Composite index (compromise between the German DAXK and the American S&P 500?), +39% in 24 years:

• It closed the year at 20,958
• Year over year: +8.1%
• From March 2022 all-time high: -5.1%
• Since March 2000 maximum: +39%
• Back to where I had been for the first time in 1998

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