Monday, January 02, 2006

Total Returns Global Markets

Happy New Year!

Let's review the total returns for equity indices for 2005. These figures are per JP Morgan and are based in US dollars.

S&P 500 +4.87%
DJIA -0.61%
Russell 2000 +4.55%
Russell MidCap +12.65%

Canada +26.0%

Asia exJapan +21.0%
Japan +17.1%
Emerging Asia +27.5%
Australia +17.5%
Hong Kong +8.4%
Singapore +11.2%
China +19.8%
Korea +58.0%
India +37.6%
Thailand +9.2%

Argentina +10.4%
Brazil +45.9%
Chile +18.4%
Mexico +44.9%
Venezuela -39.2%

Many consultants have advised against too much dependency on global markets for equity portfolios because of the increasing integration of economies, the reduced segmentation of markets, and hence, the increased correlation of global markets.

However, as the results, at least for 2005 indicate, the increased opportunity set that global markets provide can sometimes provide outstanding returns to investors.

Venezuela proved to be the worst experience for the global investor last year, largely as a result of the left leaning policies of President Chavez which seem to be echoing in other parts of South America, notably Bolivia and Peru. Economic growth in Venezuela has been strong, propelled by oil prices. The Venezuelan economy could show GDP growth this year that nears 10% as high energy prices have driven both personal consumption and massive infrastructure programs. The current account balance represents almost 17% of GDP! The 30 day loan rate however is almost as high a Brazil's at 16.5%. The unstable and uncertain regime for investors is fraught with risk. Even Exxon Mobil decided to sell off a stake in the Venezuelan La Cieba oil field rather than accept the uncertainty of the energy economics. This is a clear demonstration that even if you had predicted the price of energy correctly, even if you would have predicted the strength of the Venezuelan economy correctly, and even if you would have predicted the strenth in the Venezuelan bolivar correctly, it would have been difficult to have made any headwind in the equity market as capital flows left the country.


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