If bad news comes in threes, we’re due for some good news given the headlines of choice over the past week. Let’s try: the n stock market is actually doing quite nicely.
In short order, we’ve been told (again) that is running out of luck and “we’ll all be rooned” by one of the usual perma-bears – a story very nicely skewered by Crikey’s Bernard Keane.
Then there was a regurgitation of the standard housing disaster effort but both of those were topped (or bottomed) by a theory that our stock market was somehow broken while the rest of the world was surging ahead on sunlit plains extended.
Two graphs from the Reserve Bank will suffice to destroy the latter headline. The first shows the ASX basically travelling in line with the global index. Yes, the American market is clearly outperforming us and the rest of the world. I’ll come back to that.
The second graph shows what the story ignored – we’re much richer from dividends than the world average, let along the dividend-shy Americans.
Add the extra couple of hundred points in dividend yields, never mind franking credits, and the ASX is very comfortably beating the rest of the world.
Our love of dividends is why the simple All Ordinaries Index, or S&P ASX 200, doesn’t tell the true story about the n market. For that, you have to go to the accumulation version, the index that adds the value of dividends – although it still ignores the benefits of franking credits.
Go to the S&P 200 Accumulation Index and you’ll see our market is actually running around a record high.
The trick the knockers use to compare our market is to ignore our dividends and compare the previous boom-time peak with the present. Do that with the Accumulation index on a first-of-the-month basis and we’ve gone from 42,623.8 on October 1, 2007 to 56,137.99 ten years later – a rise of 32 per cent.
Not exactly the “going backwards” of the give-me-your-money-to-invest-overseas mob, is it?
But that’s also misleading. The peak of the last cycle was an unnatural time, a bit of a nonsense the way such peaks are. It would be an extremely rare individual who only invested everything at that peak.
More likely for any investor with half a brain is that they steadily add money as the market rises and falls. Let’s take, say, a 12-year range to factor in that bit of irrational exuberance as well as the subsequent GFC panic. On October 1, 2005, a dozen years ago, the Accumulation index was on 25,942.8. It’s risen by 116 per cent.
Not so shabby, is it?
The bigger thing though is that the n market doesn’t have to be all things to all investors. Yes, it is overweight banks and miners – but the US is overweight a handful of big tech stocks.
It is the reasonable thing for investors to diversify their holdings across asset types and geographies. That’s what we do.
There is no need to talk down the n market in the process.