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Key points:

Last week, the MSCI World Index rose 3.84%, the best week since early November, but Shanghai and Shenzhen performed the worst. Why did global stock markets recover last week? Last week's global stock market rebound and Japan's economic data better than expected further confirmed most people's misunderstanding of the reasons for the global stock market crash on August 5.

1. Last week, the MSCI Global Index rose 3.84%, marking its best week since early November, but the Shanghai and Shenzhen indexes performed worst.

The economic data released last week and the performance of global stock markets completely discredited the view in early August that the sharp decline in global stock markets was attributed to the recession of the US and Japanese economies, because Japan's GDP growth in the second quarter exceeded expectations, and the US employment data and personal consumption expenditure data in July were also pleasantly surprised. In particular, the global stock market achieved the strongest single-week performance in nine months. The only regret is that the performance of the Shanghai and Shenzhen stock markets was not satisfactory, ranking last in the continued rise of major global stock markets.

Judging from the stock market gains on Friday, August 16, compared with Friday, August 9 last week, global stock markets had their best week since November last year, and the losses from the two-day stock market crash on August 2 and August 5 have been basically recovered. Because the blow to the stock market from the unwinding of the yen "carry trade" was fully digested, market volatility eased, and a series of reassuring economic data showed that consumers were resilient and inflation was approaching the Fed's target, investors also saw that the concerns that the United States and Japan were heading for recession were completely redundant.

Wall Street's S&P 50 index broke a four-week losing streak and closed last week at 5,554.25 points last Friday, August 16, up 3.9% from 5,344.16 points on Friday, August 9, including a 0.2% increase on Friday, the strongest performance since November.

The Nasdaq Composite Index rose from 16,745.3 points on August 9 to 17,631.72 points on August 16, up 5.3% last week, including a 0.2% increase on Friday. The Dow Jones Index rose from 39,497.54 points on August 9 to 40,659.76 points on August 16, up 2.9% last week, including a 0.2% increase on Friday.

The Nikkei 225 index rose from 35,025 points on August 9 to 38,127.5 points on August 16, a sharp increase of 8.86% last week, including a 3.88% increase on Friday. It has completely recovered the plunge in the first week of August and exceeded the closing price of 38,126.33 points on August 1.

South Korea's KOSPI50 index also rose 5.2% last week, Taiwan's Weighted Index rose 4.1%, India's S&P CNX NIFTY Index rose 0.71%, and the Euro Stoxx 50 Index rose 3.53%.

On Friday, August 16, the Shanghai Composite Index closed at 2879.43 points, up 0.6% for the week; the CSI 300 closed at 8349.87 points, down 0.52%; and the CSI 30 Index closed at 3345.63 points, up 0.42%, ranking last among the major global markets in terms of weekly gains and performing the worst.

On Friday, the MSCI World Index closed at 817.41 points, up 3.84% for the week. The MSCI World Developed Markets Index closed at 3584.19 points, up 3.96% for the week. Both were the best weeks since early November. Compared with the CSI 300 Index, which only rose 0.42%, the performance of the Shanghai and Shenzhen markets is clearly different.

2. Why did global stock markets recover across the board last week?

Last week's recovery in global stock markets was primarily due to the completion of the unwinding of yen "carry trades", which resulted in the negative factors in the first week of August being fully digested by the market.

At the same time, economic data from the United States and Japan showed that their economic conditions were better than people worried.

U.S. inflation data released on Wednesday showed that the annual increase in the Consumer Price Index (CPI) fell to 2.9% for the first time below 3% since March 2021. Strong U.S. retail data and lower-than-expected initial jobless claims released on Thursday swept away comments about a U.S. recession in early August and boosted investor confidence.

A gauge of U.S. consumer confidence also came in stronger than expected on Friday, just above an eight-month low hit in July. The Vix volatility index, known as Wall Street’s “fear gauge,” fell below 15 after hitting a four-year high of 65 during the early August sell-off.

Economic signals from Japan also boosted investor sentiment. Japan's gross domestic product grew at an annualized rate of 3.1% in the second quarter ended June from the previous quarter, the Cabinet reported on Thursday. The reading beat consensus forecasts for a 2.3% increase after the economy contracted 2.3% in the first quarter.

Japan's economy rebounded from a slump at the start of the year thanks to strong growth in Japanese consumption. Private consumption, which accounts for more than half of GDP, rose 1.0% in the second quarter from the previous quarter after falling for four consecutive quarters. The increase reflected strong demand for cars and clothing, as well as more people dining out.

Meanwhile, Japan's capital expenditure also rose 0.9% quarter-on-quarter in the second quarter, the first increase in two quarters, suggesting that Japanese companies remain aggressive in increasing investment to boost production and address acute labor shortages through the use of automation.

Japan's economy exceeded expectations in the second quarter. On the one hand, it verified the correctness of the Bank of Japan's interest rate hike in July. On the other hand, it also provided support for the Bank of Japan to raise interest rates when major countries started a cycle of interest rate cuts. Other major economies cut interest rates while Japan raises interest rates, which will attract capital inflows, thereby pushing the yen to continue to appreciate.

Although the Federal Reserve will begin a rate-cutting cycle in September, investors have fully priced in a three-quarter-point cut by the end of the year.

The U.S. two-year Treasury yield, which is closely related to interest rate expectations, closed at 4.05% on Friday, up 0.39 percentage points from its recent low on August 5. This also reflects that investors have reduced their expectations for the Federal Reserve to raise interest rates.

Last week, my country released financial data and macroeconomic statistics. Financial data showed a clear decline, unemployment rate rose, fixed asset investment growth slowed, real estate transactions continued to fall sharply, and market demand continued to lag behind supply. This may be the main reason why Shanghai and Shenzhen performed at the bottom last week.

3. Last week's global stock market rebound and better-than-expected economic data from the United States and Japan further confirmed most people's misunderstanding of the reasons for the global stock market crash on August 5.

Due to the yen rate hike at the end of July and the Federal Reserve's signal of a September rate cut in early August, the yen continued to appreciate against the dollar to 144.35 on August 5, up 3.9% from the end of July, reaching its highest point in seven months, leading to the liquidation of a large number of yen "carry trades" and driving the Japanese stock market to plummet. On Friday, August 2, the Nikkei 225 index fell 5.8%, and on Monday, August 5, it plunged another 13.4%, becoming the worst day since the Black Monday crash on Wall Street in 1987.

Since the liquidation of the yen "carry trade" involves not only the Japanese market but also the European and American markets, the plunge in the Japanese stock market also led to a sharp decline in other global markets.

The S&P 500 fell 2.2% on Monday, August 5, after falling 1.8% on Friday, August 2; the Nasdaq fell 2.13% on Monday after falling 2.4% last Friday; and the Dow Jones Industrial Average fell 2.0% on Monday after falling 1.5% on Friday.

South Korea's KOSPI50 index fell 4.1% on August 2 and then fell another 9% on the 5th; India's S&P CNX NIFTY index fell 1.2% on the 2nd and then fell 2.7% on the 5th; Britain's FTSE 100 index fell 1.3% on the 2nd and then fell 2% on the 5th.

The CSI 300 Index fell 1% on August 2 and then fell another 1.2% on August 5.

After the stock market crash, many people believed that this was part of a global market sell-off centered on concerns about a U.S. recession. Many of our analysts published analysis on the afternoon of August 5 on their own media, saying that concerns about a U.S. recession were the culprit for the global market crash.

At that time, Saburo wrote in his article “Does the global stock market crash occur because the Sam rule shows a recession in the US economy?” that such a conclusion is simple, naive, and will be falsified by subsequent economic performance. Because those who draw the above conclusions have ignored the huge impact of the yen-dollar exchange rate rising to a seven-month high on the Japanese and US stock markets, and the spread of this impact on the global securities market. Saburo also clearly pointed out in the third part of the article that the recent continuous decline in US stocks is not the so-called US economic recession, and mechanically applying the Sam rule will misjudge the economic trend.

【Author: Xu Sanlang】