WORLD STOCK MARKET RETURNS 1900-1995
DOMESTIC REAL STOCK MARKET PERFORMANCE
globalfindata.com
Bryan Taylor
Another important difference between the United States and Canada is Canada’s greater dependence on natural resources in its Gross Domestic Product. This is one reason why Canadian stocks have underperformed American stocks in the long run; however, this difference also provides an opportunity. The Canadian market tends to outperform the American market during decades in which commodity prices are rising, such as the 1930s and 1970s, but Canada tends to underperform the United States during periods of strong world economic and industrial growth, such as the 1950s and 1980s. Consequently, whereas the American market averages are currently hitting new highs in real terms, Canada is just now returning to the highs it reached during the 1960s. Canada provides a useful means of diversifying stock portfolios in order to reduce risk.
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6. Commodity-based Economies Reduce International Portfolio Volatility
The economies of Australia, Canada, South Africa, Norway and New Zealand show a greater dependence on commodities in their Gross Domestic Product than most of the industrialized countries. These countries’ stock markets have shown a low, and in some cases, negative correlation with the behavior of the world’s other major stock markets. These markets performed relatively strongly in the 1930s, 1940s and 1970s when most of the world’s stock markets were in bear markets. On the other hand, South Africa was the only one of the world’s stock markets to show a real decline in value during the 1950s. Canada outperformed the United States in the 1930s, 1940s and 1970s, but underperformed the United States in the 1920s, 1950s and 1980s during periods of strong economic growth. The countercyclical nature of these countries’ stock markets is an important fact which both market timers and buy-and-hold investors should be aware of. Market timers will want to switch out of industrialized economies and into commmodity-based economies in periods of slow growth and inflation, and to minimize their investments in these economies during periods of strong economic growth. Buy-and-hold diversifiers will want to insure that these countries’ stocks are in their international portfolios to reduce the volatilities of their returns. These countries should play an important role in any international investor’s portfolio. |
