We have always stressed the need to own the great companies in the United States and the world. There are 44 countries that have publicly traded companies (stocks) that investors can, and likely should, own. The reason being we don’t just want to own the approximately 3,500 stocks that are available in the United States but also the additional 7,000 plus companies available for ownership in the worldwide stock markets. These totals do not include the so-called frontier country markets which are discussed below.
Owning companies across the world allows for significant diversification, and it also allows you to participate in the larger market gains that have occurred for some time in foreign countries. Loring Ward has put together an interesting chart which highlights the best performing stock market by country over the last 10 years. The chart is available by clicking the button at the bottom of this post.
The country flag represents the country’s stock market performance relative to the other countries’ stock market performances. As you will see, the United States stock market – as well as it did in 2013 – was still not the best performing country stock market worldwide. Unbelievably, the following three countries had better performing markets: Greece, Finland and Ireland. Greece?? Yes Greece – with a yearly return of nearly 50%. So much for the end of European civilization.
Who could have predicted last year’s performance? That is why we try not to forecast by short-term returns, either for individual countries or individual companies. The last column in the chart shows the last 10-year average by country. You will be surprised when you see where the U.S. market ended up. Remember the key to stock investing is to invest across all available companies, regardless of the “home” country.
Yet those investors who shunned the volatility of international markets, and stayed invested only at home, fell behind as the U.S. ranked only 30th out of 45 developed and emerging markets over the last 10 years.
One caveat: I would not recommend those country stock markets which are known as “Frontier Countries”. Examples of these countries are Kuwait, Argentina, Kenya and Pakistan. These countries’ stock markets are not yet developed sufficiently to safe guard investors. Classification of frontier markets often reflects a country’s political and market environment, legal and regulatory infrastructure and general ease with which foreign investors can do business. The recent conflict in the Ukraine – another Frontier Country – highlights the additional, and we believe, unwarranted risk for investors. However, countries do exit this classification and end up in the Emerging Market category, such as Russia and China recently.
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Source: Morningstar Direct 2014. Country performance based on respective indices in the MSCI Net Return USD Index. Greece return is S&P Greece BMI TR USD Index. All returns in USD currency and net of withholding tax on dividends. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk, including loss of principal.
International markets involve additional risks, including, but not limited to, currency fluctuation, political instability, foreign taxes, and different methods of accounting and financial reporting. As a result, they may not be suitable investment options for everyone.
Diversification neither assures a profit nor guarantees against loss in a declining market.