It is almost universally accepted that in the Western world we are likely to see a future that features lower economic growth than in previous decades.

Most people automatically draw the conclusion that low GDP growth equals low share market returns.  This article will show you that there is virtually no relationship between GDP growth and share market returns.

The first chart shows the share market returns of developed countries on the vertical axis and at the same time shows GDP growth on the horizontal axis.  You can see that the country with the highest GDP growth is Japan and yet that country had one of the lower share market returns over the period (of 100 years).

Conversely Australia had one of the strong returns from the share market, but was among the lowest GDP growth countries.

We now take a look at developing countries to see if the same holds true for them.

Again we see that the country with the highest share market returns had one of the lowest GDP growth rates.

Ah I hear you say, but none of these charts consider China, which most would highlight as the beacon of economic growth.

The following chart shows Chinese GDP from 2000 to 2012 (measured in $US).  It shows an economy that has grown four fold over that time.

Now lets take a look at the Chinese share market over the same period.

This chart shows that the Chinese share market has barely grown since 2000, and yet the economy (GDP) has grown four fold.

To finish on China we now compare how investors fared in 2012 by investing in Greek shares versus Chinese shares.   The Greek economy is in the middle of a depression while the Chinese economy grew around 7%.  We rest our case.


Bottom line - GDP has virtually no relationship to share market returns.

This material has been provided for general information purposes and must not be construed as investment advice. This material has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Investors should consider obtaining professional investment advice tailored to their specific circumstances prior to making any investment decisions and should read the relevant Product Disclosure Statement.





Published in Shares