How much would you have made over the last 5 or 10 years if you had invested in the US, Europe, emerging markets or Canada? And how do these market returns compare to Australia?
Investing in the USA
If you’d invested your money in the US sharemarket over the past ten years, it’s likely that you’d have made almost nothing on the deal. According to the MSCI USA index, the annualised historical return over the last decade is pretty well zip, 0%. US investors of the buy-and-hold variety made pretty well nothing, as the market swung wildly but landed in almost the exactly same spot. Given the global financial crisis, it is not surprising that over the last 5 years the return on US shares was negative, -1.3%.
The 1999-2009 period is called “the lost decade” for American share investors. During the last 10 years, the DOW reached a high of 14,000 in 2007 and a low of 6,500 in March of 2009, marking a period of unusually high volatility. Although exposed to extremely high risk (or volatility), the rewards were not on the table as the DOW Jones Industrial Average, the major index that Americans refer to as “the market,” hovered around 10,000 for almost a decade. It was not surprising, therefore, that Americans turned to real estate as an alternative wealth creator, only to see the real estate market fall in a heap as well as the debt crisis engulfed the nation.
The last decade was an important one for the Europeans: fifteen more countries joined the European Union and twelve more adopted the Euro as their national currency.
But since the onset of the global financial crisis, the EU has experienced a string of crisies that have hampered sharemarket returns. High unemployment, social unrest, Government and debt bailouts have all but decimated any confidence that sharemarket investors had in the newly formed union.
The annualised gain over the past 10 years is a meager 2%. And just like for American investors, the last five years were even worse, with an annualised loss of -4.5%.
MSCI has an index called BRIC that encompasses Brazil, Russia, India and China. The Chinese economy is the world’s second largest after the US, and is well on the road to being the next super power. Russia and India, too, have experienced stellar growth rates in stark contrast to the US and Europe.
India’s economic advantage comes from the fact that it spent only 3% of GDP on economic stimulus as compared to China’s 8%, and both nations have had similar results. India’s financial sector remained robust throughout the financial crises, which bodes well for the future. In other parts of the world, commodities exporting countries like Russia and Brazil have powered ahead as high commodity prices have floaded their markets with cash.
If you had invested in MSCI’s BRIC index in January 2006, your portfolio would be off its 2007 high and would have suffered a loss in 2009. Even so, you would have made a stellar 55% return to date, or approximately 11% per year. This would have been a solid return considering the turbulent financial markets for the last three years. If you invested in January 2001, however, your portfolio would be up an incredible 240% return to date, or an average 24% per year.
Out of $18 trillion USD invested in equities globally, only 6.5% or $1.17 trillion has been allocated to emerging markets. Given the bleak returns from Europe and the US, and the disproportionate small percentage of funds allocated to emerging markets, emerging markets are likely to steal a bigger proportion of the global investment pie in the future.
If you’d ignored calls for diversifying your portfolio into international markets, and kept your fortune at home, you’d have done just nicely, thanks. If you did so in 2001, you would have made 3.5% a year over the last 5 years, or 10% a year over the last 10 years.
Canadian investors have met a similar fate. Investing in Canada has returned around 10% annualised over the last 10 years. Like Australia, Canada is a major exporter of commodities. The difference between the two is that Canada trades with the US and Mexico, while Australia trades mostly with China and Japan.
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