Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Register

19 April 2024

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 28, 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
November 30, 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
November 30, 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

The ASX's 16-year drought: a rebuttal

Firstlinks is sponsored by:
banner

Most viewed in recent weeks

2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.

The greatest investor you’ve never heard of

Jim Simons has achieved breathtaking returns of 62% p.a. over 33 years, a track record like no other, yet he remains little known to the public. Here’s how he’s done it, and the lessons that can be applied to our own investing.

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Welcome to Firstlinks Edition 552 with weekend update

Being rich is having a high-paying job and accumulating fancy houses and cars, while being wealthy is owning assets that provide passive income, as well as freedom and flexibility. Knowing the difference can reframe your life.

  • 21 March 2024

Why LICs may be close to bottoming

Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

Latest Updates

Shares

20 US stocks to buy and hold forever

Recently, I compiled a list of ASX stocks that you could buy and hold forever. Here’s a follow-up list of US stocks that you could own indefinitely, including well-known names like Microsoft, as well as lesser-known gems.

The public servants demanding $3m super tax exemption

The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.

Property

Baby Boomer housing needs

Baby boomers will account for a third of population growth between 2024 and 2029, making this generation the biggest age-related growth sector over this period. They will shape the housing market with their unique preferences.

SMSF strategies

Meg on SMSFs: When the first member of a couple dies

The surviving spouse has a lot to think about when a member of an SMSF dies. While it pays to understand the options quickly, often they’re best served by moving a little more slowly before making final decisions.

Shares

Small caps are compelling but not for the reasons you might think...

Your author prematurely advocated investing in small caps almost 12 months ago. Since then, the investment landscape has changed, and there are even more reasons to believe small caps are likely to outperform going forward.

Taxation

The mixed fortunes of tax reform in Australia, part 2

Since Federation, reforms to our tax system have proven difficult. Yet they're too important to leave in the too-hard basket, and here's a look at the key ingredients that make a tax reform exercise work, or not.

Investment strategies

8 ways that AI will impact how we invest

AI is affecting ever expanding fields of human activity, and the way we invest is no exception. Here's how investors, advisors and investment managers can better prepare to manage the opportunities and risks that come with AI.

Sponsors

Alliances

Site Map

About Firstlinks

© 2024 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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.