[lead]Global markets show considerable local variation and investors can expect higher risk adjusted returns from international diversification (with one exception).[/lead]

In this interconnected world it is tempting to assume that global stock markets move together, especially among the developed countries. In the chart below, we plot the range of country returns for 22 developed countries for the 20 years 1998-2017. For example, in 2015, the lowest annual stock market return was Canada (-24.2%) and the highest was Denmark (+23.4%).

DFA Canada, DFA Returns 2. Returns in local currency. Global Market is the Dimensional Global market Index, rebalanced monthly.

Some points to observe:

The average spread of annual stock market return, between the best performing country and the worst performing country, is 60.6%.
Not surprisingly, the best and worst performance is dominated by smaller countries (Finland, New Zealand, Ireland, Austria, Spain and Canada). Canada and New Zealand shared the distinction of going from worst performer to best performer in consecutive years.
We highlight the performance of Canada (red dot) compared to other countries. The annualized return for Canada in the period was 6.24%.
The annual return from a world stock market index, weighted according to stock market size, is illustrated by the yellow line. The annualized return for this index during the period was 7.76%

So far, there is no evidence that country performance can be predicted in advance. A common misconception is to look at economic forecasts as predictors of markets but this is looking through the wrong end of the telescope: it is markets that are predictors of economies as current market prices reflect the value of future profits. Over the long term it is reasonable to expect that the stock markets of individual countries exhibit positive returns. Over the past 20 years an investor would have accrued the most wealth by investing in Denmark ($7.35 for every dollar invested).

Is Denmark going to continue its winning streak? Another way of looking at performance is to consider the return per unit of risk. In this case, risk means the amount of variation in the returns from an investment. Taking the statistical measure, standard deviation, as the risk measure then we can ask what is the best bang for a buck in terms of return per unit of risk. On this basis, the Global Market Index (a market weighted composite of all the countries) gives the highest ratio (0.37), only beaten by Denmark at 0.44. We wish the Danes good fortune but at 0.6% of the world stock market we will continue to diversify across global markets.