Australia is the best performing equity market in the world over the past century according to a Bloomberg story. I confess I would never have thought this but given the claim has been made by the London Business School and Credit Suisse I guess it has some credibility.
If this is truly the case, it begs the question of why our own super funds are bothering to invest so heavily offshore. They could be getting better returns here at home without the currency volatility and whilst funding greater investment here. So long their investment horizon is a century.
And that’s really the point here. The most interesting thing about the story is the spurious analytics that go along with this chart. Spurious analytics, thin slicing and a lack of depth is what has driven me to start trying to shine a light on the data and this is another good example.
The Bloomberg Story says:
Australia’s prosperity has been driven the past century by an abundance of coking coal, iron ore, precious metals, natural gas and soft commodities. Demand for raw materials from Asia looks set to spur continued growth, with Australia’s terms of trade, a measure of income earned from exports, at a 60-year high as Chinese and Indian demand surges, according to the country’s central bank.
“The worldwide demand for raw materials will continue to be important for economic growth in Australia,” said Paul Marsh, professor emeritus of finance at London Business School and one of the report’s three authors. “This is widely recognized by investors, so the Australian market may already be impounding these advantages into current stock prices. We expect the Australian stock market to perform closer to the worldwide average.
Now, our emeritus professor might be right but we think he’s drawing a long bow using this analysis of 111 years of annual stock market returns to make a call on the market now. Seems a dubious use of statisitics. If he had said that we were a standard deviation of two away from our normal return pattern that might be a different story.
All this data tells us is that Australia has performed better than the rest of the developed world over the time frame of the study. It’s a history lesson.