The top 5 stock markets in the world have delivered excellent performances. I admit that stock market performance and price do not directly connect with national economic size. At least not when you look at the absolute figures. You will find that these stock markets are not the major players but come from emerging economies.
Research has shown the best-performing markets are those in countries least affected by the climate and impacts from major economies. Most of these emerging stock markets have good local economies for their size, and they know how to trade. Last year’s top stock markets were tiny regarding liquidity and volume, but the current gains are garnering attention from foreign investors, rating agencies and fund managers.
Year to date gains in Africa’s second-largest economy continues to grow. This year Nigeria’s stock market (NGX) experienced a 31% gain. Improved financial stability and the government’s commitment to reform banking give Nigeria a “thumbs up” as an emerging stock market. Yet, there is still high political unrest, confusion and violence that may keep investors away from Nigerian stock markets.
The Pakistan Stock Exchange (PSX) experienced a 33% gain in 2012, and a healthy volume is continuing to soar. This is due to the State Bank of Pakistan’s easing of monetary policies. The key interest rate in Pakistan’s has been cut to 10%, down from 12% at the end of 2012. Lower than expected inflation figures and inflation trending lower will cause Pakistan’s central bank to cut economic interest rates further.
Turkey is the one bright spot in an otherwise gloomy European economy. Turkey’s economic growth is slow, but there has been no recession thanks to robust exports. Fitch Rating lifted Turkey’s credit rating to investment grade, which sent the Istanbul stock exchange (the Borsa İstanbul) (BIST) to record highs. Year to date gains (end of 2012) for Turkey are at 43%.
After tumbling more than 50% in 2011, Egypt’s stock market (EGX) has gained back this 50% plus five additional percentage points due to this country’s first free presidential election. The political situation in Egypt is still very dark, but the market is beginning to come alive. Investors are still sceptical, but a 55% gain at the end of 2012 gives Egypt a step up in the markets. We can only hope that the Egyptian government will soon decide on the type of laws it will embrace.
The top stock market in the world is, surprisingly, Venezuela. With a 219% gain in 2012, this somewhat shady country staged a massive rally in the Caracas stock exchange (Bolsa de Valores de Caracas) (BVC). The improvements are mainly due to Venezuelan banks enjoying larger shares. Even though this high gain has put Venezuela at the top of emerging stock markets, investors should be cautious to watch the markets due to the government’s non-support of free enterprise.
Venezuela, Egypt, Turkey, Pakistan and Nigeria are the top five hottest stock markets in the world for 2012, yet these countries remain chaotic due to political and labour unrest.
Our Final Thoughts
Interestingly, sometimes these markets can display a stronger leaning to perfect competition than the more highly regulated western markets. It would be interesting to go through companies on these exchanges with a professional quant trader. Using analysis like dividend payout ratios, net profit margins and accounting rate of return, how would these firm’s compare to their western counterparts?
In researching this article and coming back for the edits, it made me with about the importance of investment diversification. Other assets classes like precious metals and even crypto-currencies provide all sorts of diversification benefits.