According to new research, the ASX has been the best share market in the world since 1900.
How good is the Australian share market?
The Australian Financial Review has reported on research carried out by Credit Suisse, the London School of Business and Cambridge University.
That research showed that in US dollar terms, the ASX share market has delivered the best returns out of any other market since 1900. That means it beat the US, the UK, New Zealand, the Netherlands, Japan, Canada and so on.
What was the return delivered by the Australian share market over that period of more than a century to the end of 2020? It was 6.6% per annum.
That’s not bad considering there have been a couple of painful share market crashes over the last two decades, which Australia’s share market has barely recovered from.
One helpful factor for Australia’s good performance was the contribution of dividends, which is higher than what you’d see from other markets, according to Mark Davis, Credit Suisse’s head of equities Australia. The AFR quoted Mr Davis, who said that the ASX: “continues to be an attractive destination for both local and international investors.”
Regarding Australian dividends making up 53% of total returns, Mr Davis said: “This is higher than what you would see in other markets. For example, in the US, dividends contribute 42 per cent of total market returns. The rise of China boosted resources company and market dividends over the past few decades“.
What to make of this for the ASX?
It’s not too surprising that the ASX has done so well considering Australia went for around three decades without suffering a recession. That’s obviously going to help share market returns. However, as we all know, past performance is not an indicator of future performance.
Australia and the ASX can’t continue to rely on commodities to keep doing all the heavy lifting unless iron ore and lithium can continue to power the ASX to new heights for many more years to come.
It’s going to take the other large businesses in other sectors to pull the ASX higher from here – shares like CSL Limited (ASX: CSL), Macquarie Group Ltd (ASX: MQG) and Afterpay Ltd (ASX: APT) will be some of the names that dictate whether the ASX can continue to outperform or not.
