In our last piece, we discussed how the Shanghai Composite, the most watched stock index in China, was looking a little too similar to something we've seen in our (collective, unless you're 14) lifetime: the collapse of the 2000 NASDAQ Technology Bubble. It was a sloppy first cut - not normalized to anything, and we ended up with separate graphs for the two markets.
Normalizing Two Stock Markets
Today, we'll fix that - we introduce a concept of "days before or since the peak", and set the peak (respectively, a closing peak of 3/10/2000 on the NASDAQ and 6/12/2015 on the Shanghai Composite) to be "0%". All other data points on this graph are relative to that peak, and all days are 'trading days' - removing the effect of market closures for holidays and weekends.
Okay, enough introduction:
Click to enlarge
So, if you're playing along at home, here is how it looks (Shanghai numbers through Monday close):
| NASDAQ Losses | Shanghai Composite Losses | |
| 20 Trading Days Since Peak | -11.93% | -23.15% |
This seems like a fairer comparison than our first article, but please let us know your feedback. It disregards inflation and dividends - both important matters (we've got, for example, a calculator on the S&P 500 that adjusts for both). Still, those were both reasonably low in the time-frame in question although it can be hard to get a bead on the numbers in China at times.)
However, for a quick cut, this seems like a good measure, and we plan to follow it. Stay tuned - and let us know if you see anything interesting in the data, as always.
