Global Stock Market Performance in the 2000s: Winners and Losers

Jan 13 2010

Ranga Chand’s Notes on the Global Economy & World Financial Markets – January 2010
 
Global Stock Market Performance in the 2000s: Winners and Losers
 
Last year ended on a stellar note for the world’s stock markets. In anticipation of a global recovery from the Great Recession, stock prices soared in all the regions of the world. In the advanced economies, the MSCI index for developed markets posted a gain of 30.8%. While impressive, these gains were no match for the performance of the emerging markets as the MSCI index for those markets rocketed up by 78.7%.
 
As we enter the second decade of the 21st century, it is both interesting and instructive to take note of how equity markets performed during the first decade of the new century. And here, what jumps out immediately is that, at the aggregate level, this decade also belonged to the emerging economies. Over the 10-year period from December 1999 to December 2009, the MSCI emerging markets index delivered an average annual return of 10.1%, far outstripping the returns from the developed markets which managed to eke out a niggardly annual return of 0.2%.
In money terms, an initial investment of $10,000 on December 31, 1999 in the stock markets of the developed world would have grown to $10,200 by the end of 2009, for a paltry gain of $200. In sharp contrast, a similar investment in the emerging markets would have netted an investor a gain of close to $16,200, or 81 times more!
 
Of course, as we all know, averages tend to mask more than they reveal and inevitably raise more questions. In particular, for investors, the answers to the following two questions should be especially illuminating. First, did all emerging markets register stellar gains in the first decade of the 21st century and, secondly, were all the stock markets of the developed economies in the dumpster?
 
Table 1 highlights the stock market performance of each of the G-20 countries during the past decade. This group, which accounts for about 80 percent of global output and trade, is made up of 19 developed and developing countries and also includes the European Union. Advanced economies in the G-20 are Australia, Canada, France, Germany, Italy, Japan, South Korea, the United Kingdom, and the United States. Emerging economy members are Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, and Turkey
 
Stock Markets in Several Advanced Economies Inflict Sharp Losses
As one can see, the performance of stock markets in the advanced economies in the last decade was a mixed bag with only three posting gains and six delivering losses. In this group, South Korea’s stock market was the best performer. In nominal terms, it increased at an annual rate of 5.1%, for a total gain of 65% over the ten-year period. The stock markets in the resource rich economies of Australia and Canada also rewarded investors posting annual gains of 4.5% and 3.4% respectively. But investors in the stock markets of the United States, Europe, and Japan all suffered significant losses. Italy’s market was the worst performer of the decade posting an annual decline of 5.9%, for a total loss of 45.6% (see Table 1, columns 1 & 2).
 
In marked contrast, the stock exchanges in all the major emerging markets not only posted positive returns in the last decade but also outstripped, by a wide margin, the market performance of the advanced economies. When measured in nominal terms, Russia’s market, with an annual gain of 24.6%, topped the leader board and won the stock market sweepstakes. An investment of 10,000 rubles at the end of December 1999 was worth 90,200 rubles at the end of 2009, for a cumulative gain of 802%! Interestingly, among the emerging markets group, China’s market was, comparatively speaking, the worst performer posting a cumulative gain of 132%, or 8.8% a year.
 
TABLE 1  
G-20 STOCK MARKET PERFORMANCE IN THE 2000s  
December 1999 – December 2009  
(IN LOCAL CURRENCY TERMS)  
               
    Nominal  Inflation Real1   
    Returns (%) (CPI) Returns (%)  
    Ann2 Cum3 Ann2 Ann2 Cum3  
    -1 -2 -3 -4 -5  
Advanced G-20             
Economies              
South Korea Kospi 5.1 64.5 3.1 2 21.9  
Australia All Ordinaries 4.5 55.3 3.2 1.3 13.8  
Canada S&P/TSX 3.4 39.7 2.1 1.3 13.8  
Germany DAX -1.5 -14 1.6 -3.1 -27  
United Kingdom FTSE 100 -2.4 -21.6 1.8 -4.2 -34.9  
United States S&P 500 -2.7 -23.9 2.6 -5.3 -42  
France CAC 40 -4.1 -34.2 1.9 -6 -46.1  
Japan Nikkei 225 -5.7 -44.4 -0.2 -5.5 -43.2  
Italy MIB -5.9 -45.6 2.3 -8.2 -57.5  
               
Emerging G-20             
Economies              
Russia Micex 24.6 802 14.1 10.5 171.4  
Mexico Bolsa 16.2 348.8 5.2 11 183.9  
Argentina Merval 15.8 333.6 8.5 7.3 102.3  
Brazil Bovespa 14.9 301.1 6.9 8 115.9  
Indonesia JKSE 14.1 274 8.4 5.7 74.1  
India Sensex 30 13.3 248.6 5.4 7.5 106.1  
Turkey ISE 100 13.3 248.6 23.1 -9.8 -64.4  
South Africa JSE 12.5 224.7 6.1 6.4 87  
Saudi Arabia TASI 11.7 202.4 2 9.7 152.4  
China Shanghai             
  Composite 8.8 132.4 1.9 6.9 94.9  
1Real Return = Nominal Return minus Inflation; 2Annual Rate of Change; 3Cumulative Returns
Sources: Bloomberg, IMF, Country stock exchanges      
 
Adjusting Stock Market Returns for Inflation
Although many investors generally tend to ignore the impact of inflation when assessing stock market returns, incorporating price changes gives one a more accurate picture of the real gains or losses of a stock market’s performance. Typically, returns are significantly reduced when one takes into account inflation and its negative impact on the purchasing power of money.
 
During the past decade, inflation in the advanced G-20 economies has averaged 2% a year and has ranged from a high of 3.2% in Australia to a low of -0.2% in Japan, an economy which has continued to struggle with deflation. Inflation was much more rampant in the emerging economies. As a group, prices in emerging markets increased on average by 8.5% a year in the 2000s. Moreover, unlike the advanced economies, the dispersion in inflation rates was much wider ranging from a low of 1.9% in China to a high of 23.1% in Turkey (see Table 1, column 3).
 
In the advanced economies, after adjusting for inflation, South Korea’s market gained 21.9% and was followed by Australia and Canada which both posted a ho-hum total gain of 13.8% over the ten-year period. The stock market losses delivered by the other advanced economies were also considerably magnified when one takes inflation into account. Total cumulative losses ranged from -57.5% in Italy’s market to -42% in the US’s S&P 500 to -27% in Germany’s DAX index (see Table 1, columns 4 & 5).
 
In contrast, despite having to significantly counter higher inflation rates, nine of the ten stock exchanges of the emerging markets outpaced inflation and delivered positive real returns. After adjusting for inflation, total gains over the decade ranged from 74.1% for Indonesia’s market to a high of 183.9% for Mexico’s market. The only exception was the Turkish stock exchange where inflation wrecked its performance and turned a 248.6% nominal gain into a real loss of -64.4%.  
 
Bottom Line:
No one could have predicted ten years ago that the stock markets of virtually all the advanced economies would inflict such horrendous losses on investors. Nor could one have foretold that investors in the emerging markets would be rewarded with such stellar gains.
 
Similarly, trying to predict what this decade will hold for stock market investors is nigh impossible and is best left to the legion of crystal ball gazers. All one can say with confidence is that, in the second decade of the 21st century, the world’s stock markets will post returns that will be full of surprises both good and bad.
 
© Copyright 2010 Chand Carmichael & Company Limited
 

About Ranga Chand

Ranga ChandRanga Chand is recognized both domestically and internationally as one of Canada's leading economists and mutual fund analysts. Professionally, he held senior positions with Canada's Department of Finance, then served as a director of the Conference Board of Canada, before joining a major stock brokerage firm. He has also taught economics at the University of Waterloo, published extensively in the field of economics, and represented Canada at numerous economic forums, including the OECD in Paris, the United Nations, and the World Institute of Economics in Germany.

A media personality with a huge following, his popular television show "Talking Mutual Funds with Ranga Chand" aired weekly on Canada’s Report on Business Television (ROBTV) for three years from 2000 to 2003 and reached over 4.3 million viewers nationwide. Much in demand by organizations, industries, and associations throughout North America, Ranga is well known for his down-to-earth, clear, and informative presentations on the subjects of the global economy and investing.

He is the author of a number of best-selling books including:

  • Ranga Chand's Top 50 Mutual Funds
  • Ranga Chand's Getting Started with Mutual Funds
  • Best of the Best Mutual Funds, Featuring America's top 50 Heavy Hitter funds
  • Is Your Retirement at Risk? Winning Strategies for a Financially Secure Future.

Highly respected in the investment community, Ranga Chand is founder and President of the research and consulting firm Chand Carmichael & Company Limited, located in Ottawa, Ontario.

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