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Country Returns 2017 USD value of $1000 invested in 1994
CountryA 9.56% $8,165
CountryB 7.5% $5,277
CountryC 1.25% $1,330
Puzzle: Which country (China, USA, India) translates to A,B,C? Honor system. You can't use search.
Why: I get headaches from the weekly threads on this forum on US vs. International investing These type of threads invariably end up with poor information content and jingoism. A rational investor is interested in underlying reasons for returns and correlations: are returns related to GDP growth; GDP per capita; Population and population growth; demographics; innovation; share buybacks or share dilution; evidence of competition vs. monopolies/moats; Governance/Corruption; rule of law leading to high PE; tax policies by Governments; size and sector of companies...Can we use them to predict returns?
Narrative: I picked these 3 countries because they are so different and provide an interesting example of why investing/ predictions are difficult and why set viewpoints like home bias maybe wrong (or right).
China in the last 25 years has the biggest economic growth and is the fastest emerging country. It also had staggering increase in both GDP and GDP per capita. Its market cap of public companies has skyrocketed. Foreign capital has rushed in making share dilution less likely (or maybe not). It has problems with governance, potential corruption and insider trading laws.
USA in the last 25 years, already started as the world's largest GDP. Its GDP growth has been very good for a developed country but not comparable to emerging economies. Population growth is modest. Rule of law and Governance are good but not the world's best (based on country corruption scores). It has had easy access to capital but high corporate taxes.
India in the last 25 years, started close to China in GDP per capita but has grown far slower being a democracy. Its GDP has grown reasonably fast but a large piece is due to very fast population growth. Like China, there are concerns about governance and corruption. Access/use of foreign capital has been much slower than China.
My prediction: Most people will guess A,B,C wrong! I will be back after enough replies. Hopefully it will make people think about what drives investor stock returns and the complexity of making long term predictions. Again, no cheating, no searching!