Why has the Chinese stock market performed so poorly over the past year when Wall Street has done well? Is the situation about to change?

The differing performance is because of very different circumstances. US policymakers are struggling to re-establish an acceptable level of economic growth - creating enough jobs, raising incomes - in the aftermath of the debt crisis. Inflation sustained above 2 per cent a year would signal success.

But they are hampered in their efforts by conflict between two powerful and opposed political groups - the more-spenders and the tax-cutters. For the moment, compromise is unobtainable. So fiscal policy is paralyzed and public debt continues to rise.

The only actor with relative freedom to act is the Federal Reserve (the central bank), which drenches the system with abundant "printed" money and nearly-free credit.

But most of the easy money goes into bloated mega-banks, politically well connected entities -- and investment markets. Its positive effect on stimulating economic activity is negligible.

China's policymakers are struggling with the opposite problem.

Their economy is so strong - its manufacturing sector now the world's largest, forex reserves of $3.2 trillion accumulated from huge foreign trade surpluses, high savings ratios, sound central government finances and moderate national debt - that it's been growing too fast.

One consequence has been inflation that has been far too high - politically destabilizing and dangerous in a nation where roughly a third of personal spending is on food.

Inflation no greater than 2 per cent a year would signal success. China is on the way to achieving that, with the rate down to 3.2 per cent and continuing to fall.

The US is focused on raising growth, China on containing it. The policies are opposed, so no wonder their stock markets are performing differently.

There are early signs that this is about to change:

David Fuller's view China's Shanghai A-Shares Index has often had an enigmatic characteristic causing it to sometimes diverge from global trends which are strongly influenced by Wall Street. You can see this on a 10-year chart of the A-Shares with an S&P 500 overlay. The A-Shares did not fall as much before the US invasion of Iraq in March 2003, which is logical, but they also lagged by drifting lower after that war started, before commencing a rapid catch-up in 2006. Both indices then moved in sync until August 2009 when China began to tighten its monetary policy and increase bank reserve requirements.

Will China commence another catch-up move with Wall Street before long?

Martin Spring clearly thinks so and I agree on the basis of comparative valuations and economic prospects. However, monetary policy is by far the most important fundamental influence on overall stock market performance, in my opinion. This remains highly stimulative in the US but China, deterred by inflationary pressures, has been cautious in easing monetary conditions to date.

I assume that this will change, eventually, but the process of political changeover currently underway in China may have complicated matters. Whatever, I am disappointed to see the A-Share Index (weekly & daily) fall back sharply from its 200-day MA following the best rally since mid-2010. The retreat started with that big downside key day reversal on 14th March, which you can see on the daily chart, and over half of this year's initial gains have been retraced.

The Index now looks oversold once again and I think the low will hold. Nevertheless, this retreat has further delayed China's stock market recovery. We need to see another clear upward dynamic, signalling the return of demand, followed by an eventual sustained break above the MA and the last high near 2600. When this occurs we will have more convincing evidence that China's next cyclical bull market is underway - a period during which both China and other Asian countries should mostly outperform Wall Street. Meanwhile, Hong Kong's HSI (weekly & daily) and HSCEI (weekly & daily) may continue to underperform Wall Street until the next A-Share boom.