Post stock market crash investing
Which global stock market could provide the biggest return following COVID-19?
However, the FTSE100 is not the only option available as most share trading apps allow users to buy shares in multiple global markets. In this article, we’ve taken a look at which of the various international markets might provide a better return than the FTSE100. One way to assess the potential of these markets following this crash is to look at their recovery after the last one – the global financial crisis of 2007-8 (GFC). For the sake of this research, we’ll be looking at the following 9 global markets:
- United Kingdom: FTSE100
- Australia: ASX200
- United States: NYSE, S&P500, Dow and NASDAQ
- Germany: DAX
- Japan: Nikkei 225
- Canada: TSX
What was the GFC?
The global financial crisis was a crash in the world economy caused initially by high-risk lending to low income, or “sub-prime”, individuals in the United States. At the time, debt from several of these high-risk borrowers was bundled and traded. A bank could purchase the debt from the initial lender, bundle several loans together and sell that debt on. Often, the debt ended up being owned by an entity that was far removed from the one that initially extended the loan. As profits were being made from the trading of loan debt rather than the loans themselves, lenders began to offer loans to customers with a higher and higher risk profile. Eventually, when the number of borrowers who couldn’t pay back the funds they borrowed passed a market-tolerance threshold, the house of cards collapsed and dragged the world economy down with it.
Global investment tracker
This chart depicts the return on the initial $500 (£275) investment over time. As you can see, some markets performed far better than others. The NASDAQ is the standout performer with a huge $1,586 (£875) return on investment. The ASX doesn’t fare very well, coming second-from-last with a return of only $858 (£474). However, the UK’s FTSE100 takes home the wooden spoon with its measly $839 (£463) return.
Average market performance
This chart depicts the four-week rolling average of all nine market indexes from October 2007 to today. We’ve used a rolling average as this helps to smooth out some of the movement in the preceding graph, while still giving us a good idea of how the numbers are changing over time. As you can see, the full effect of the GFC was not felt by global markets until March 2009, when the average index reached a low of 4,462. Interestingly, all 9 markets hit rock-bottom at the same time – during the week ending on 6 March. For this reason, we will choose this date as a starting point. What would be today’s theoretical return if an investor had dropped $500 (£275) into each of these global markets on this date?
While most investors buy and sell stocks in individual companies, it is possible to invest in the whole market by buying into an index fund. There are several different funds available in each market, but the performance of all of them tends to follow their corresponding market quite closely. These are the investment options favoured by Warren Buffet, one of the world’s most successful investors. Be aware that, as we have seen, whole markets can go down as well as up.
This article offers information about investing and the stock market, but is not personal investing advice. The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please get professional advice, for example from a financial adviser.
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