Nikkei, Nifty: Chart parallels

Tuesday, October 14, 2008

At the height of the Japanese 'bubble', the market value of the one mile square Emperor's palace estate in the heart of Tokyo was worth more than the entire state of California. The value of Nippon Telephone and Telegraph was more than the market capitalization of the entire German stock market.

Are there lessons for India where valuations are beyond purchasing power? If so, the outcome is painful as the charts below illustrate:

(click on charts to enlarge)

From 1984 to 1990 Oct, the Nikkei climbed from 10,000 to almost 40,000 and then started crashing.

From 2002-2008 Jan, the Nifty climbed from 1200 to 6000 and then started crashing.

After correcting 50% in just over a year, the Nikkei has continued to lose another 50% over the next 15+ years. There are lessons; or nifty will parallel the Nikkei chart shown below for the next few years:

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