A.In more than 40 countries, there are more than 15,000 publicly traded companies. Russia, for example, represents about 0.4% of the global stock market. A Russian who seeks to build a global portfolio may have reason to invest the bulk of the home. However, this will reduce investment in other countries – representing the remaining 99.6% of the market.
The same applies to the Japanese investor, whose homeland is 8% of the global stock market. Even the US stock market – the largest in the world – is only about half the global set of all opportunities. Do your investment decisions take such opportunities into account and, if so, how do you choose markets for investments? Is there a trend in any country that gives an idea of its future profitability?
Consider the profitability of the stock market in the United States and Denmark. Can you immediately determine in which country stock market returns have been higher in the past two decades? In fact, Denmark turned out to be the best in profitability for all these years among all developed markets with an annual yield of 10.6%.
Surprisingly, Denmark had the best return only once, in 2015. The United States, despite strong returns over the past few years, ranked only ninth with an annual yield of 6.3%.
Denmark is also an example of the unpredictability of short-term results. After the highest return among developed markets in 2015, Denmark had the lowest return in 2016.
In 2000, New Zealand had the lowest yields among developed markets, and then the highest in 2001 and 2002. In emerging markets, Hungary and Russia have gone from two low scores in 2014 to two highest scores in 2015.
No convincing study suggests that investors can consistently choose the countries with the highest stock market returns.
This evidence of chance in global stock returns, however, is not bad news for investors. A global diversified approach can provide more reliable results over time with less volatility (risk) than investing in individual countries.