How did the stock market perform over the last three decades for each major country? In this writing, we refer to the 19 MSCI country-based indexes total return including dividends and in USD terms. Data point starts in December 1992, as we cannot get China and India data prior to that date. We add Emerging Market index, because some would say that investing in emerging countries offers potential to outperform the established countries. 

It is interesting to see that most established countries outperformed emerging markets over the long run. Three countries have consistently made it into the top ranks: United States, Netherlands, and Switzerland.

Over the last 29 years, Brazil performed the best return, followed by Switzerland and the U.S. Brazil market experienced superior performance in 1990s and 2000s, but loss the charm thereafter. Over the last 10 years, Brazil placed among the worst performers.

It is also interesting that within the same 29-year period, China stocks only produced a 1.76% annual return.

In the most recent decade, the U.S. market outperformed all major countries. Top runner-ups remained the Netherlands and Switzerland. 

We intent to conduct a deeper research on factors (how and why) they became the top performers. In the meantime, we found similarities between these markets. First, growth of its listed companies, driven by innovation and global-reach products. Second, the depth of its financial market, measured by total market capitalization of stocks as a % of GDP. Third, the stability of its currency relative to the USD.

Switzerland always tops the global innovation rank. It is a home to well known luxury products, consumer products, and banks. Its currency, Swiss Franc (CHF) has been a stable currency in the global economy.

The Netherlands uses Euro (EUR), which is not as stable as CHF, but the country is in top global rank for innovation. There you can find tech stocks such as ASML and Adyen. What makes its stock market interesting is the fact that Netherlands —Not France, Germany nor U.K.— has Amsterdam stock exchange which is considered the oldest stock market still functioning today, where the giant company Dutch East India Company (VOC) did the world’s first IPO in 1602, almost 2 centuries before the United States Independence and the French Revolution.

Stock market return is volatile. By default, no one likes volatility. It is crucial to look beyond a mere return when comparing investment alternatives. For example, if you invested in MSCI China in late 2004, you would get a 23.83% compounded annual return by the end of 2009. That would be a decent return, but only if you can handle the -50.83% drop of your fund in 2008. Not many investors can do that. So one should look at risk-adjusted return instead of return per se. China stocks —a country with massive economic growth since 1980s— only produced a 1.76% annual return over the last 29 years.

Risk-adjusted return measures how much return you may get per unit risk taken. It takes into account both the return AND the volatility. It is a more balanced view of investment performance. Several approaches can calculate the risk-adjusted return. One of the most popular is the Sharpe ratio. It is calculated as an annualized return above the risk-free rate divided by standard deviation. In simpler terms, return compared to volatility.

U.S. equity may not always provide the highest investment return, but it performed the highest risk-adjusted return (Sharpe ratio) for most of the time. 

A close examination of the MSCI country universe reveals that U.S. equity has the highest risk-adjusted return for various time frames within the last 3 decades. It has the highest Sharpe ratio against every single country. In the last five years, the U.S. equity Sharpe ratio was 1.23, higher than Emerging Market (EM) 0.42 and Eurozone average of 0.50. The same pattern happens in all other periods.

Table below shows the Sharpe Ratio if you invested in some random year within the last 3 decades.