Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 229

Stock market winners 10 years on

It has been 10 years since the end of the 2003-2007 global China/credit boom, and it is time to check in on how stock markets have fared since then. The left chart ranks countries by their broad share price index growth over the past decade. Only 36 of the 62 main stock markets are ahead of their pre-GFC highs. The right chart shows average economic growth rates per country over the same period, in the same country order as the market performance, to demonstrate if economic growth relates to share price growth.

Among the ‘developed’ markets, Denmark won the gold medal in January 2013 for being the first stock market to surpass its pre-GFC peak, and it is now 126% ahead (i.e. more than double its pre-GFC peak). The silver medal went to the US in March 2013 and bronze went to the UK in May 2013. [See previous articles, Stock market Olympics, and the winners are and Australia can learn from gold medal winner, Denmark].

As usual there has been no statistical relationship between economic growth and share prices when measured across countries. Australia has been the so-called ‘miracle economy’ with the strongest long-term economic growth rate in the ‘developed’ world, and it did not even suffer an economic recession in the GFC, thanks to a deficit spending spree our grandchildren will be paying off. Yet the local stock market index (in price terms, not accumulation including dividends) is still behind its November 2007 high.

In contrast, the US, UK, Western Europe, Canada and even New Zealand suffered far lower economic growth rates in the GFC and over the past 10 years, but they have generated much stronger share prices than Australia. Denmark, the stand-out gold medallist stock market in the developed world, has had virtually no economic growth over the past 10 years. At the other end of the scale, China had the fastest economic growth rate over the past decade (and the largest aggregate growth in human history) but has had one of the worst stock markets.

Another common feature is that countries with the strongest stock markets often suffer political, economic or social turmoil and this was the case again - e.g. Argentina, Venezuela, Pakistan, Philippines, Turkey and Mexico.

There are many reasons for differences in share prices in different countries of course, but this quick snapshot is a useful reminder of the folly of focusing on economic growth as a pointer to share prices.

 

Ashley Owen is Chief Investment Officer at advisory firm Stanford Brown and The Lunar Group. He is also a Director of Third Link Investment Managers, a fund that supports Australian charities. This article is general information that does not consider the circumstances of any individual.

 

6 Comments
Phil
January 29, 2018

Is 10 years really long enough for it to be statistically sound. The article uses the word statistical basis. It's one period and correlations can change depending on a number of other variables, not just GDP.

Albert
January 28, 2018

True that GDP does not correlated with Stock returns. Markets rise and fall.

Some points to note :
1. Few of us would invest in countries like uninformed, poorly developed, small third world markets - so this is largely irrelevant in our investable universe.

2. We need to have a large investment in our locale of domicile to match risk and liability/needs. Yes, we can hedge currency but there is a cost to wear which comes off your long term return.

3. Given that we invest in largely open and efficient markets the long term returns will equalise i.e. investors will appropriately price high vs low growth stock markets resulting in rational returns for risk. Overseas have done well for now but this will change too.

ashley
December 01, 2017

hi Chris -
regarding inflation - i also measure each market after its domestic inflation.
In addition I also measure each in terms of AUD returns on both a hedged AUD basis and un-hedged AUD. So there are dozens of ways of measuring returns.
For the above story I used the domestic nominal returns in each country in the local currency of each country - in order to show what the stock market for each country did for local investors in that country - because most investors have a heavy 'home bias' and think primarily about their own market in their own currency when then think about shares.
So back to returns after inflation - Australia actually does considerably worse on real returns because our inflation rate is significantly higher than other developed world markets - eg Europe, US, UK and Japan.
Cheers
Ashley

Chris Jankowski
December 01, 2017

It looks to me that the results reported for the two top places - Venezuela and Argentina are completely bogus. Both of these countries had periods of uncontrolled and under reported high inflation. The simplistic comparison most likely ignores that.

By these standards the undisputed leader, had it been reported, would certainly be Zimbabwe.

ashley
November 30, 2017

hi mark

Adding dividends (and even adding franking credits) doesn't get the ASX anywhere near the leaders. ASX total returns including divs only gets us +37% ahead of its 2007 high.
And adding franking credits as well only gets it to +62% above the 2007 high. That is still below the S&P500 PRICE index which is +66% ahead (before dividends), and it is still some 40% below the S&P500 total return index including US dividends.
(and Aust is also still behind other major markets like Japan, UK, Germany and even NZ on a total return basis)

cheers
ashley

Mark Higgins
November 30, 2017

Think you need to factor in our high dividends - eg the all odds Accumulation Index - then we are ahead.

 

Leave a Comment:

     

RELATED ARTICLES

GFC and personal reflections, 10 years on

Podcast: What did you do during the GFC? Warning signs and lessons for investors

COVID-19 and the madness of crowds

banner

Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Latest Updates

Strategy

$1 billion and counting: how consultants maximise fees

Despite cutbacks in public service staff, we are spending over a billion dollars a year with five consulting firms. There is little public scrutiny on the value for money. How do consultants decide what to charge?

Investment strategies

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.

Strategy

Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated' investors can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.