Have you ever wondered what are the best performing stock markets in the world? Almost every country has a functional stock market, but not all countries’ stock markets have been performing the same. If your great-great-grandfather had invested $1 in the U.S. stock market in 1900, it would be worth $3,806 at the end of 2019, as the U.S. market has provided an average annual return of 6.5 percent (after adjusting for inflation) since 1900. But are there other stock markets with better returns over that duration? Let’s find out.
Since 1900, some countries’ stock markets have performed well. The top ten best performing stock markets in the world since 1900 include the following countries: Australia, the United States, South Africa, New Zealand, Denmark, Sweden, Canada, Finland, Switzerland, and the Netherlands. We will briefly discuss the top five markets in this post.
What are the five best performing stock markets since 1900?
Over the previous 120 years, business and the economy have seen significant transformations. For example, in the United States, railroads accounted for 63 percent of the total stock market value in 1900, but today, they represent a small portion of the S&P 500 index. Cars, smartphones, airplanes, music streaming, movies, internet gaming, cloud computing, and other technologies have since risen to prominence.
Despite two World Wars, a Cold War, and numerous economic crises, several stock markets have performed remarkably well over those 120 years. According to the annual Credit Suisse Global Investment Returns Yearbook, these are the best performing stock markets since 1900:
The Australian Stock Market
According to Credit Suisse data, the Australian stock market has offered the most robust returns to investors over the last 120 years, outperforming equities on indexes in the United States and Europe. Since 1900, the ASX (Australian Securities Exchange) has provided actual yearly returns of greater than 6.5 percent when translated into U.S. dollars.
The Australian equity market has been a vital market for Australian businesses to source capital, as well as a good destination for household retirement funds. The total capitalization of listed firms in Australia was slightly less than $2 trillion at the end of 2018, or around 100 percent of GDP.
The Australian Securities Exchange includes most large, well-known companies in Australia, such as major banks and resource companies. They make up a big chunk of Australia’s output and jobs and have kept the Australian economy strong over the years.
According to data provided by Credit Suisse, the London School of Business, and Cambridge University, Australia’s equity market outperformed every other stock market, including the US, South Africa, and New Zealand, if the returns are in US dollars.
The U.S. Stock Market
Since 1900, the stock market in the United States has produced positive returns. The market has delivered 6.5% real annualized returns (after adjusting for inflation) since 1900. This means that a $1 invested in 1900 would be worth $3,806 at the end of 2019. Considering dividends and stock splits, it might even worth more, and that is the inflation-adjusted return.
The South African Stock Market
South Africa has provided investors with one of the highest stock returns since 1900, despite two world wars, the Great Depression, and the constant redrawing of country boundaries. South Africa benefited from buffers against global turbulence due to natural resources as a commodity-rich nation. Still, their economies have evolved to rely on newer industries such as finance, technology, and services, according to a joint study by Credit Suisse Group and the London Business School that scanned data dating back 117 years.
The average return on South African stocks is 7.2%, which is more than two percentage points higher than the average return around the world and makes South Africa one of the best of the 23 countries that Credit Suisse and LBS studied. However, when analyzed in USD, the annualized returns become 6.4%.
The New Zealand Stock Market
According to recent data, New Zealand’s stock market is the fourth highest performing since 1900. In Credit Suisse’s Global Investment Returns Yearbook, which details how global markets fared, it was reported that the New Zealand stock market had annualized returns of 6.4% since 1900. This makes it one of the best-performing stocks over 120 years.
The Denmark Stock Market
Denmark has been ranked fifth in our list of the top five highest-performing stock markets since 1900. Several factors have contributed to the expansion of Denmark’s stock markets. Denmark was officially neutral during the World War but leaned toward Germany for apparent political reasons, building minefields around its waters at Germany’s request to control the Baltic republics. During the war, the Danish navy’s primary task was to lay mines and keep track of them.
The riskiness of shipping grew with the outbreak of World War I, with rising insurance premiums. Denmark’s government assisted in mitigating these expenses by covering three-quarters of the risk to the Danish merchant marine. Denmark’s neutrality benefited it because it allowed it to trade with Germany, Britain, and all of the countries involved in the conflict. The Danish economy thrived between 1914 and 1917 as enterprises capitalized on Denmark’s chances. As a result, the economy rose, but so did stock market speculation, particularly in shipping businesses. Profits were reflected in a substantial increase in dividends given by shipping corporations.
By the end of 1932, United Steamship shares were trading at a significantly lower price than before World War I. When adjusted for inflation, the Danish stock market experienced an 80-year bear market between 1898 and 1980. Because Denmark experienced inflation during World War I and economic devastation following World War I, most shareholders suffered greatly throughout the first 30 years of the twentieth century. Danish stocks have only consistently given investors high real returns over the last 35 years.
Why is Australia’s stock market the best?
As you can see, the top three best performing stock markets are Australia, the US, and South Africa, all three are commodity-rich nations. It seems their natural resources helped them withstand the global turbulence. But all three of them have successfully diversified their economies to other industries, such as technology and financial services, over the last century.
Of course, the United States currently has the largest equity market in the world, accounting for little more than 54% of global free-float market capitalization, with Japan in second place (at 7.7 percent of global equity market capitalization). However, it is the Australian stock market that performed best over the last 120 years. Why is that? What made the Australian stock market outperform the rest?
Surprisingly, there is no single reason for the strong performance of the Australian equity markets. It seems that due to its geographical location, the country sustained little damage from WWII. Also, the country’s strong banking sector and service-based economy have made it better able to handle financial crises than the U.S. and other countries.
But specifically, dividends, which accounted for 53% of total market gains over the 121 years, contributed a lot to Australia’s outperformance. This is higher than you’d see in other marketplaces. In the United States, for example, dividends generated 42% of total market returns. In addition, Australia’s leadership in commodity exports such as iron ore, coal, and zinc and the demand for resources from fast-growing Asian nations such as China might have contributed significantly over the last few decades.
Moreover, owing to its low corruption index, fair and transparent legislation, and well-developed education system, Australia has also become a popular destination for overseas investors. Despite the COVID-19 outbreak, Australian equity markets have performed admirably in the last few years.
Why stocks outperform other markets
Despite the two world wars, a cold war, multiple economic crises, and many other global events in the last 120 years, global equity markets have only continued to grow in the long run. According to the annual Credit Suisse Global Investment Returns Yearbook, published in collaboration with the London Business School and Cambridge University by the Credit Suisse Research Institute, which has been tracking the historical profits and hazards of investing in stocks, bonds, cash, and currencies in 23 countries, equities has outperformed all other investments.
The yearbook reports that the 23 countries it tracks accounted for 98 percent of the world’s stock market valuation in 1900 and still account for 91 percent of that presently. Its analysis shows that stocks beat bonds in the long term. Between 1900 and 2019, global stock markets multiplied at a real (after-inflation) rate of 5.2 percent, while bonds provided only 2% annualized returns throughout the same period. Treasury bills have performed even worse — they returned only 0.8 percent during that period.
This means that over the past 120 years, stocks have done better than government bonds by an average of 4.3% per year. That is, if person A invested the same amount in global equities as person B and both invested for 120 years, person A would have 165 times more money than person B. Note that all of the values have been adjusted for inflation.
One of the reasons for stocks outperforming other markets, despite all the global crises, is the world’s determination to always rebuild after every crisis. This has led to increased productivity and growth for companies. Another reason is technological advancement and innovations. In fact, tech stocks contribute the highest weighting in the S&P 500 Index. Finally, the government’s solutions to recessions have been lowering interest rates to provide cheap credits. This not only helps equities to grow but also lowers returns from bonds.
Why should you invest in the stock market?
Investing in stocks has numerous advantages. Among the most important are the following:
The possibility of earning significant returns
Most people buy stocks because of the possible return when compared to alternatives such as bank certificates of deposit, gold, and Treasury bonds. Since 1926, the average stock market return has been around 10% per year; long-term government bonds have returned 5% to 6% per year during the same period.
The ability to safeguard your wealth against inflation
The stock market’s gains are often higher than the rate of inflation. For example, since 1913, the long-term inflation rate has been around 3.1 percent annually. This is in comparison to a double-digit annual return on stocks. Stocks have historically been an effective tool to protect against inflation.
The ability to generate consistent passive income
Many businesses pay dividends, or a percentage of their revenues, to shareholders. This may come monthly, quarterly, half-yearly, or annually. Dividend income can complement an investor’s salary or retirement funds. Alternatively, you can sell some shares regularly to get “income”. It’s exactly the same as if a company paid a dividend.
A share of stock indicates a unit of ownership in the company that issued the stock. It enables you to own a little portion of a company whose products or services you enjoy.
Most equities are traded openly on a major stock exchange, making them simple to acquire and sell. It also makes equities a more liquid investment than other possibilities, such as real estate assets, which are difficult to sell.
You can buy stocks of companies in different industries. This way, you can spread out your investments across real estate, financials, techs, telecom, and even cryptocurrency, thereby lowering your overall risk while increasing your chances of making profits.
The ability to begin slowly
Investors can start buying stocks with as little as $100 thanks to commission-free brokers and trading platforms. Some platforms, like Robinhood, offer the opportunity to buy fractional shares of the higher-priced companies.
Alternatively, you can start dollar-cost averaging into some mutual finds or ETFs.
How many companies (stocks) contribute to the overall gains?
In 2017 Hendrik Bessembinder published a landmark study named do stocks outperform Treasury Bills? The study confirmed what many had a hunch about, but they missed the numbers: it’s just a tiny fraction of the stocks that contribute to all of the gains. The great majority of the stocks underperform Treasury Bills! This is why almost no active manager goes on to beat the indices over many years and why stock picking is so difficult.
The best performing stock markets of the world – final thoughts
Over the years, the stock market has generated tremendous wealth. The S&P 500, which includes 500 of the largest publicly traded corporations in the United States, has returned between 8% and 12% per year over the last 50 years. A $10,000 investment in the stock market 50 years ago would now be worth more than $380,000.
However, keep in mind that the stock market does not rise every year. The S&P 500 falls three times out of every ten years. Some drops can be harsh. However, if you can overcome your fear, stocks have the potential to outperform other investment options in the long run.
Finally, note that past performance may not be indicative of future results. There is no guarantee that equity markets that have performed well over the last 120 years will continue to perform well in the future. The Russian stock market, for example, closed in 1917 and didn’t open again until 1991! Likewise, you don’t find Germany among the best performing stock markets in the world due to two world wars and devastating inflation in between. Also, keep in mind that the flagship of the world, the USA, had a civil war only 150 years ago.