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NEW YORK ( TheStreet) -- The first half of the trading year ended on Friday. Table 1 shows the index returns of the world's major equity markets.

Japan's Nikkei was by far and away the first half winner despite that country's 25-year struggle with economic stagnation. Yet, don't let that 33% market index return fool you -- just over a month ago that index return was more than 50%.

Another noteworthy observation is that the equity markets in the BRIC countries (Brazil, Russia, India and China), still among the fastest growing, were among the worst first half performers.

Courtesy of International Monetary Fund

Clearly, the Graham and Dodd approach to equity investing isn't working. Both Jeffrey Gundlach (Doubleline) and David Rosenberg (Gluskin Sheff) have found an 87% correlation between the Federal Reserve's balance sheet and the S&P 500 since the first quantitative easing.

On June 24, the Bank For International Settlements published a note on central bank balance sheets. Since 2007, the BIS, said the world's major central banks have, in the aggregate, grown those balance sheets 133%.

Using the ratio of the central bank balance sheet level/GDP as a measure, the BIS said that big changes occurred at the Bank of Japan, the Fed, the Bank of England and the European Central Bank.

But the biggest change occurred at the Swiss National Bank. Table 2 shows the change in the balance sheet/GDP ratio since 2007 for selected central banks and economic areas.

Courtesy of the Bank For International Settlements

It is noteworthy that the central banks in China and emerging Asia (including Indonesia, the Philippines, Taiwan, India, Singapore, Korea...) grew their balance sheets faster than their GDP prior to 2007, but not since, and that other emerging nations (including Central and South America, Mexico, Eastern Europe, Russia, South Africa, Turkey ...) grew their balance sheet ratios only marginally.

So, now Table 1 makes sense. Throughout the world, equity market performance for the high return group is entirely due to central bank balance sheet expansion. Negative equity market performance occurred in countries with no central bank expansion. Perhaps fundamentals and a deteriorating worldwide outlook played a role in those markets!

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