We reviewed the US market valuations and the expected return yesterday and found that US market is expected to return 2-4% a year in the future years. The global market provides a totally different picture. The returns in some countries can be much higher.
The details of the how to estimate the future market returns of the global market, the data sources, the interpretation of data have all been discussed in great details in our new page of Global Market Valuations. Please go to that page if you want to learn more and have unanswered questions.
As of March 1, 2012, the expected returns for the global market are shown in the chart below:
Among developed countries, Singapore and Australia continue to have the highest expected market returns. The expected returns are in the order of mid-teens a year. Among developing countries, Chinese market is still the highest. The expected return is in the order of 20% a year.
Three factors decide the expected returns of the market. They are economic growth, dividend payment and the current market valuations. If the current market valuation is below its historical mean, the contribution from the reversion of the market valuation to the mean is positive. Otherwise, it is negative.
Among developed countries, contributions from reversion to the mean for US, Korean, and German market are negative because these stock market in these countries are traded above historical means. For developing countries, those for Indonesia and Mexico are negative. The details can be seen in the chart below:
These are the details of the expected return for the world’s largest markets:
|Projected Annual Return (%)|