The Good, The Bad, And The Unexpected

By Mary Holm

Monday 29th October 2001

I saw a fascinating table the other day. It showed which country had the best- and worst-performing share markets in each of the last 20 years, up till June 30 2001.

The countries included were: Australia, Canada, France, Germany, Italy, Japan, New Zealand, UK and US.

New Zealand topped the list in 1984, and scored the booby prize in post-Crash 1988 and 1989.

Every other country except the UK was best at least once. And every one except France was worst at least once.

The over-all best performer - and this surprised me - was Italy, which did best in five years and worst only once.

Over-all worst was Japan, which did best in two years, but worst in six years. Canada was close behind it.

Before we get too carried away with all this, it's worth noting that:

- Even though the UK didn't ever come top, it must have had lots of seconds and thirds.

Other recent research looked at gross (including dividends) share indexes of New Zealand, Europe except the UK, the US, the UK and the world.

Of those five indexes, the UK one performed best over the last 25 years, with an average performance of 19 per cent a year.

- In another comparison of fewer countries - including Australia, Germany, Japan, New Zealand, UK and US - New Zealand came top in 1986 and 1993.

Going back to the original table, it was also interesting to note the range of returns recorded in the different years.

In 1988, the best any of the nine countries could produce was 5 per cent, in Japan.

Just two years earlier, though, the Italian share market rose 107 per cent. Share prices more than doubled in a year.

There's also a wide range of worst performances. Canada certainly did dismally in 1982, when its share market dropped 39 per cent.

But in seven of the 20 years, shares in all nine markets rose, so that even the worst performance was still a positive return.

In one year, 1985, Canadian shares rose 25 per cent, but it still ranked worst. Every other country did better still.

Another point: Getting into last year's best market is bad strategy.

True, twice in the 20 years, the best performer one year came top again the next year. (In both cases it was Italy.)

But three times, the best performer one year came dead last the next year.

What are we to make of all this?

- Big doesn't necessarily mean best. The US, whose shares make up more than half the value of all the world's shares, put in the best performance in 1995 and 1999, and the worst in 1994. Nothing to rave about.

- Short-term returns on shares are all over the place. You should never count on getting high returns over just a few years. Over the long term, though, average returns tend to be good.

- Don't try to pick winning markets. Past performance tells you nothing useful.

- The only way to be sure you're in the coming year's winning market is to invest worldwide.

The best way to do that is to invest in an international share fund.

In such funds, of course, you will also be exposed to the worst market each year.

But the good and bad performances will offset one another. You'll have a less rocky road than if you were invested in just one share market - including the New Zealand one.

Mary Holm is a freelance journalist and author of "Investing Made Simple", commissioned by the New Zealand Stock Exchange to write an independent personal investment column. She can be reached at maryh@pl.net. Sorry, but she cannot respond directly to readers.

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