You and your Thai Wife of 20 years.

[Taggart]

The 2010 Global Investment Returns Yearbook from the London Business School is now out and can be accessed through this article in the Financial Times (UK).

I keep looking at the chart of stock market investment returns on page 6 of the Yearbook and I can't see any discernible difference between the results obtained by an an investor starting in 2000 up to the end of 2009 invested in either China or Thailand. Thailand got hit hard in the east Asian financial crisis in the mid 90's from which it seems it never fully recovered, and China hardly got touched by that crisis....and yet all I've heard from the experts here in Canada is to invest in China, because of it's GDP growth. The trouble is that growth doesn't seem to be going into investors pockets. After reading the yearbook, I don't see the point. If I'm going to invest in emerging markets, I'd be as well just investing in an index fund or ETF, instead of trying to pick individual countries. Any other thoughts?

[ExpatJ]

Argumentsfor investing in Thailand anyway...high dividend payments (among highest in the world); alot of foreign investors inlcuding big institutional ones (JP Morgans etc) invest in Thai SET (@30% of investment in the SET comes from overseas).

[Abrak]

I have a report somewhere on my PC that looks at stockmarket returns with data going back 100 years and compares it with GDP growth. What it finds is that stock market returns are actually 'inversely correlated' with GDP.

There is a vaguely rational explanation for this. Investment drives GDP growth and GDP growth attracts investment. In China building more cement capacity than the whole world put together generates GDP but it doesnt mean these factories are particularly profitable.

However the report places most of the discrepancy on the higher rating attributable to higher growth economies which means less dividend return and often contracts over time. Emerging markets only outperform if they are lowly rated.

[Deez]

I have a report somewhere on my PC that looks at stockmarket returns with data going back 100 years and compares it with GDP growth. What it finds is that stock market returns are actually 'inversely correlated' with GDP.

There is a vaguely rational explanation for this. Investment drives GDP growth and GDP growth attracts investment. In China building more cement capacity than the whole world put together generates GDP but it doesnt mean these factories are particularly profitable.

However the report places most of the discrepancy on the higher rating attributable to higher growth economies which means less dividend return and often contracts over time. Emerging markets only outperform if they are lowly rated.

"inversely correlated" with GDP? LOL...I guess you will be investing your money in Zimbabwe and Somalia

[sokal]

, Peter Schiff and Marc Faber both have said that the SET has better value then China right now, I would go with the SET

[Abrak]

"inversely correlated" with GDP? LOL...I guess you will be investing your money in Zimbabwe and Somalia

Well I did take quite a close look at Zimbabwe but didnt invest. A shame really considering the market capitalisation increased from US$1.25bn last year to US$3.9bn last month.

Anyways here is a summary of various data showing the inverse correlation. The longest study looks at 16 countries over 100 years. You can also continue to believe that fast GDP per capita growth leads to stronger stockmarket returns if you like.

http://docs.google.com/viewer?a=v&q=ca...4TUW-ihS0onU6IQ

[Deez]

"inversely correlated" with GDP? LOL...I guess you will be investing your money in Zimbabwe and Somalia

Well I did take quite a close look at Zimbabwe but didnt invest. A shame really considering the market capitalisation increased from US$1.25bn last year to US$3.9bn last month.

Anyways here is a summary of various data showing the inverse correlation. The longest study looks at 16 countries over 100 years. You can also continue to believe that fast GDP per capita growth leads to stronger stockmarket returns if you like.

http://docs.google.com/viewer?a=v&q=ca...4TUW-ihS0onU6IQ

Those numbers can be massaged to come up with multiple conclusions. Do you really believe a flat or declining GDP is a better investment than a growing one? $1.25bn to $3.9bn, Wow impressive stats for Zimbabwe market cap....too bad it was $10bn in 1997. So its lost 60% in the last 12+ years.

Edited February 15, 2010 by Deez

[Abrak]

Those numbers can be massaged to come up with multiple conclusions. Do you really believe a flat or declining GDP is a better investment than a growing one? $1.25bn to $3.9bn, Wow impressive stats for Zimbabwe market cap....too bad it was $10bn in 1997. So its lost 60% in the last 12+ years.

Well the Thai SET was 1786 on Jan 4th 1994 and it is now under 700. The Vietnamese market was 1200 3 years ago it is now 500.

What I believe is this. There is no reason or evidence to suggest that an economy that averages 3% growth over say 50 years will generate worse stockmarket returns than one that averages 6%.

That stock markets perform best when they are fundamentally cheap and worst when they are expensive. One of the reasons that fast growing economies produce poor stockmarket returns is that people equate GDP growth with excess stockmarket returns and often overvalue these markets as a result.

There is a correlation between GDP growth and stockmarket returns in the short term. A market will perform badly if an economy that averages 3% growth falls into recession or one that generates growth of 6% sees growth fall to 1%.

Investment led economies are very prone to poor stock market performance in the latter stages of development. If investment growth outstrips GDP growth continually that ROI must fall unless profits take an ever increasing proportion of GDP which they cannot do indefinitely.

Finally consider what have been the fastest growing economies in Euroland over the past 10 years - they are known as the PIGS. I am not convinced their stockmarkets have generated any long term real wealth.

[Taggart]

I have a report somewhere on my PC that looks at stockmarket returns with data going back 100 years and compares it with GDP growth. What it finds is that stock market returns are actually 'inversely correlated' with GDP.

If you read it, the report I linked above also shows that in emerging market economies stock market returns are 'inversely correlated' with GDP growth.

[siamamerican]

I have a report somewhere on my PC that looks at stockmarket returns with data going back 100 years and compares it with GDP growth. What it finds is that stock market returns are actually 'inversely correlated' with GDP.

If you read it, the report I linked above also shows that in emerging market economies stock market returns are 'inversely correlated' with GDP growth.

Comparing two completely different animals. The analysis has little value in my opinion. The markets are forward looking and base price on risk. GDP isn't forward looking and is based on output. For example, in 2007 the developed world saw GDP dropping in the years to come and the markets tumbled. Hard to correlate the two without adding a lead time dimension.