Simple Pound

After I have talked you through many, many, many indices in various countries and on various continents, we need to draw some conclusions to actually make all of this worthwhile.

The main criteria for the list will simply be the medium-term growth rate (I consider 5 years to be medium-term since long-term investing is usually assumed to be > 10 years). The 5 year span should be sufficient to expose a growth trend, but there’s obviously no guarantee - especially if you’re looking at countries like India, which have become very fashionable in the last few years. If you remember the last “fashion trend” and what happened (I’m talking dot.com bubble…), you should know what I am talking about. On the other hand, most of you will be young and far away from retirement, so there’s nothing wrong with a little risk in your investment - if you’re that sort of person.

So here we go - the Top 5 indices of the “What are we tracking” series:

1. India - BSE Sensex (BSE 30): 5 year growth rate of 400.88%
2. UK - FTSE Fledgling: 5 year growth rate of 126.66%
3. UK - FTSE 250: 5 year growth rate of 92.65%
4. Hong Kong - Hang Seng: 5 year growth rate of 90.28%
5. Spain - IBEX 35: 5 year growth rate of 84.53%

I don’t know about you, but I’m quite impressed with these numbers. Most of them would have doubled your capital since 2002! The next challenge, however, is going to be to find index funds that are actually tracking these indices. I will keep you posted on my research, but you are obviously more than welcome to share your experiences and/or tips with the rest of us in the comments!

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By now, we have covered an extensive list of indices and I have decided not to cover anything too exotic like South-American or African. The reasons for this are fairly simple: I’ve collected all this information to make it easier for me (and others) to judge which indices might possibly yield the best return in the long(er) run. However, we may also not forget that we have to find index funds which are actually covering those indices, i.e. the more exotic it gets, the harder it is to find appropriate funds and the more expensive the fund’s fees will be. Therefore, I will stop - after looking at major Asian indices - and return to our original investigation of investment possibilities…

But before then, here’s a brief overview of Asian indices:

• Hong Kong: The Hang Seng (HSI) is a capitalisation-weighted stock index for the Hong Kong Stock Exchange. It covers the 36 leading companies listed and represents about 65% of the overall capitalisation on the Hong Kong Stock Exchange. The Hang Seng is a rather old index - started in 1969 - and is maintained by a subsidiary of Hong Kong’s second largest bank (Hang Seng Bank - in case you were wondering). It has grown by 90.28% in the last 5 years.

• Japan: Japan’s main stock index is the Nikkei 225 and together with the Dow Jones and the FTSE 100 it is probably the most commonly quoted stock index with investors. The index is price-weighted and contains Japan’s 225 largest companies (well, those that are listed on the Tokyo Stock Exchange…). The Nikkei includes an interesting variety of industry sectors including bus companies, fishery, precision instruments and shipbuilding. It reached its all-time high in December 1989, but has grown a respectable 58.42% in the last 5 years.

• China: The Shanghai Composite Index is the oldest stock benchmark for the Chinese securities market and covers all stocks traded on the Shanghai Stock Exchange. It has grown by 47.4% within the last 5 years, even though most of this growth can be attributed to the previous 2 years as you can see nicely in the chart below.

• India: The BSE Sensex (unfortunate acronym for Bombay Stock Exchange, which is the oldest stock exchange in Asia) is a value-weighted index of the 30 largest and most actively traded stocks on the Bombay Stock Exchange. It’s base was set to 100 in April 1979 and since then the index has been growing at a rate of roughly 27% per annum (~18% per annum after compensating for inflation). Between 2002 and 2007 it grew by an astonishing 400.88% - and trust me, I’ve done the Maths twice to double-check that result! The index, which is also called BSE30 is currently quoted at 13,384 points.

I’m too busy marveling at that phenomenal growth rate to come up with a decent closing sentence. The good news is, we’ve completed our research on (readily) available indices now and can thus draw conclusions - Top 5 list in the pipeline! I know who’s gonna be first…

Read the last part of “What are we tracking?” on the top 5 indices >>

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