dinsdag 14 augustus 2012

Comparing the Dow Jones and Shanghai Composite against Europe

Over the last few years after the 2008 crisis, I want to give a performance update for the Dow Jones vis a vis the Shanghai Stock Exchange. The Dow Jones has gone up 50% after the 2008 stock market plunge (Chart 1), while the Shanghai Stock Exchange has gone up first, but essentially lost all of its gains in the period between 2010 and 2012 (Chart 2).

Indeed, many economists have pointed out that the U.S. stock market has outperformed almost every market in the world. Marc Faber pointed this out in a recent interview on Bloomberg Radio.
Chart 1: Dow Jones Industrial Average

Chart 2: Shanghai Stock Exchange Composite Index
I want to analyze this further. How can there be such disparity? It can't be the exchange rate between the USD and the CNY, because the Chinese yuan has only gone up 5% against the USD between 2008 and 2012. So what are the reasons?

Let's take a look at the basic market metrics: P/E, dividends, book value in the full version of this article.

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