Pragmatic Capitalism

Capital for Living a More Practical Life

The Greek Stock Market Collapse in Historical Perspective

By Also Sprach Analyst

The realisation that Greek equities have somehow outperformed Chinese equities this year so far is quite comical. In fact, we are still laughing at it, as even Greeks cannot quite believe this has actually happened.

Even if you are not entirely convinced that China is growing at the rate as stated by the National Bureau of Statistics, it is still fair to say that the Chinese economy is growing, while Greece remains in a multi-year depression, thanks to the inflexibility of the Euro, which is not unlike the Gold standard. It is clear that the rate of growth of an economy is one thing, return on its stock market is a different thing.

To put things in perspective, the Greek stock market has fallen more than 90% from the pre-subprime crisis peak and reached a low in June this year (whether it is THE low is another matter which we are not going to discuss here). Even with an impressive 72% rebound in the recent months from the low, the level of the index remains nothing compared with the pre-crisis high, although it somehow managed to outperform Chinese equities for this year.

The chart below should be familiar to regular readers, which shows the boom and bust of major stock market bubbles. This time, we also add the Athens stock exchange index for the purpose of comparison, with the peaks all rebased to 100 and lined up to the same time. Interestingly, the fall of Athens stock exchange index from peak to trough matches that of US equities during the Great Depression, while that of Chinese stocks look more like a long road of decline like the Nikkei.

The Dow Jones Industrial Average bottomed in 1932 while the Great Depression did not really end until the second world war (allegedly). Since it bottomed at 41.22 on 8 July 1932, the Dow Jones Industrial Average has never revisited that point again.

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