The "Decoupling Thesis" plunges over the cliff

Friday’s steep fall took the Sensex down 10.3% from its high of 21,206 points reached on 10 January. The speed of the fall has been unnerving but then, so far, we in India have scarcely been affected by the carnage going on in the world equity markets.

If a bear market is defined traditionally as a 20% drop from a market peak, then global markets are perilously close to it. The MSCI indices of nine markets in the developed world are trading at 15-19% off the levels they were at three months back. That includes Japan, down 17.6%, and Singapore, down 17.4%, (data for three months to 17 January). The MSCI World index is down 14%.

Emerging markets haven’t escaped the sell-off. The MSCI Emerging Markets index is down 13.58%, but if you calculate the index from the peak reached on 31 October last year, it’s lower by 15%. The Far East countries have fared even worse, with the MSCI EM Far East index down 18.5% in the three months to 17 January. In the middle of this bloodbath, the Indian market has so far been the exception, with MSCI India up 3.46% in the three months to 17 January, although Friday’s dive would have sent us into negative territory. Malaysia, up 4.2% over the same period, is the only other Asian market in positive territory. MSCI China has fallen 26%.

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