If you flip a coin, there’s a 50% chance you’ll get heads, and a 50% chance you’ll get tails. But of course there’s a much smaller chance that you’ll get (say) heads three, five or more times in a row.
Market returns are less random than a coin flip. And the returns of any one year usually have little to do with the next year’s returns.
Still, looking at historical returns can highlight trends and themes within and across markets. The table below shows local market returns in Asia over the past 15 years.
From the data it’s clear that
- Average annual returns have been declining. For 2000-2015, the average annual return overall was 12%. Over the past five years, it’s been just 5%.
- If we were to exclude 2008 (the global financial crisis), returns for the entire period would jump to 16%. One very bad year can hurt returns for years.
- Over the 16-year period, Singapore (4% average return per year) and Hong Kong (5%) have been the weakest performers. Indonesia (19%), China (17%) and Vietnam (16%) have been the strongest.
- Over the past ten years for all markets, a market has dropped two years in a row only three times (once each for Malaysia, Vietnam and China). Last year, six markets ended the year in the red, which is the most of any year over the past 10 years, except for 2008, when all eight markets declined.
- Over the past ten years, no market has dropped three years in a row. Malaysia ended 2015 with a two-year losing streak.
Based on recent history, the chances are good that most markets in the region will perform well. But recent history doesn’t really matter — and might not matter this year at all.