Chart of the Day: Nasdaq vs. Shanghai By Helene Meisler RealMoney.com Contributor 4/24/2007 12:07 PM EDT This is a segment of a column that was originally published on RealMoney on April 23 at 9:16 a.m. EDT. It's being republished as a bonus for TheStreet.com readers. Have you noticed the breathless way in which people talk about China these days? In many ways, it reminds me of how folks used to talk about the Internet. In the late 1990s, we kept hearing that the Internet was going to change everything. (It has.) We often heard about the massive "buildout" that was going to take place in the technology world. (It has.) And we always heard people on Wall Street make such comparisons as, "Yahoo!'s (YHOO - Cramer's Take - Stockpickr - Rating) market cap is equal to the GDP of Finland, Sweden and Denmark," or something equally ridiculous to explain why Yahoo! was headed for the sky. Well, you can imagine my reaction when I heard someone on CNBC note that China's GDP was equivalent to the GDP of three lesser countries. At least this time around, they're comparing apples to apples, but seriously, the last time I heard such comparisons was late 1999 with regard to the Internet stocks. Before that was 1989, when we heard how the value of all the real estate in California was equivalent to the land under the Imperial Palace in Tokyo. The Tokyo market peaked the first week of January 1990. This past week, we had a scare when the Shanghai market fell 4% on fears that China would hike interest rates. The next day, that market got right back on the bandwagon and regained its lost ground. This brought about songs of praise and talk of the Chinese market's resiliency. Way back in 2001, when China first won the bid for the 2008 Olympics, I was living in Shanghai. I remember how thrilled and proud the Chinese were; there were fireworks displays and congratulations all over the place. I also knew, having lived in Asia for years already at that point, how much of a buildout (there's that word again) China would need to get its infrastructure up to date for the Olympics. I was a China bull. But people in America scoffed, mostly because the U.S. was in the middle of a bear market, still reeling from the fallout from the Internet buildout. Here we are, six years later, and only about one year away from the Beijing Olympics, and everyone loves China. A few things come to mind here. First, whatever is needed for the Olympics has already been built, is in the process of being built or is just about to be built. In other words, China is at the tail end, not the beginning, of its big buildout. The Internet was going to change the world, and it has. China's appetite for raw materials was going to change the world, and it has. Aren't markets anticipatory? In other words, if the news is out already, where's the anticipation? The next step is to take a look at the Shanghai Composite, the market that the whole world is supposedly watching. Below are two charts. The top chart is the Nasdaq Composite from June 1999 through March 2000. The bottom chart is the Shanghai Composite from June 2006 through the present. Here's what the points on the charts represent: * Point A on the charts is a roughly four-month sideways move. * Point B is an initial surge upward. The Nasdaq rallied about 42% in that surge, and the Shanghai Composite rallied about 50% in that surge. * Point C represents a two-month sideways move on both. * Point D on the Nasdaq represents an approximate 18% to 20% surge. So far, the Shanghai Composite has rallied 19% in its recent surge. There's no telling how far the Shanghai Composite can rally on this particular run, especially because it gained 50% in the Point B surge, while the Nasdaq ran "only" 40%. However, to my eyes, these charts look eerily similar.
Hello By, Very nice analysis, and commentary. I'm just curious what happened to the other chart? Have a Nice evening! Kelly
Sorry, Kelly. I didn't see that it didn't print. Thanks for pointing that out. Here is the link to the article, and the two charts, side by side. http://www.thestreet.com/_dm/newsanalysis/technicalanalysis/10352427.html
the problem is you can't directly short the china market. the fxi etf is a horrible correlation vehicle. in late dec the fxi hit 118 when the china market was 2700 and now at 3700 the fxi is 109 10 pts lower yet china is up 33%. is there anyway to short an etf that is correlated to china's market 100%? if not why is there etf that tracks china?