Chart Of The Day - China vs USA

Taking a long-term perspective on cycles of relative country performance...

China vs USA: following a previous post on Japan vs USA, I had a request to do the same for China vs USA. And the resulting picture is pretty much just as wild.

• First on a technical note, like with the Japan chart, I have converted the Shanghai Composite into US$ to make it comparable. Also, for reference, the Shanghai Stock Exchange, although founded in the 1800’s was put on ice during the tumultuous war and post-war period, and only reopened in the early-1990’s following Deng Xiaoping’s opening up and economic development campaigns. So that’s why we only have history back to the early-90’s in this chart, and even then it was a bit wild-west in the early stages.

• In terms of performance or long-term patterns, this one really does look like a case of long-term mean reversion (punctuated by bouts of booms and bubbles). I’ve often described the Chinese stock market as an on-or-off market, and when it’s on, it’s on!

• And that brings us to a very logical question: when is the switch going to be turned back on again? The answer to that comes in part from valuations (which are currently tracking cheap vs history/rates/rest-of-world), but perhaps more-so from stimulus — and as previously noted we’ve seen steps in the right direction, but are yet to reach a critical mass. So definitely an interesting chart in terms of financial history, but also in terms of potential future opportunity.

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