Sunday, July 1, 2007

where is the world’s best performing stock market?

Zimbabwe, of course. This country in southeast Africa has a booming stock market, up 595 per cent this year and up about 12,000 per cent over the past twelve months. I know, you’re thinking there must be a catch. What about inflation? Well, Zimbabwe also has the world’s highest inflation rate. In April of this year the annual inflation rate was 3,714 per cent.

Do the math. The stock market grew more than three times faster than inflation. Take inflation out and the returns were still over 8,000 per cent. Zimbabwe still has the best performing stock market in the world.

Is it the economy? Incomes and output per person in Zimbabwe have fallen for eight consecutive years. Incomes and output are half of what they were in 2000. The consensus is that the country’s economy is imploding.

Robert Mugabe, president since independence has got the printing presses going, pumping out massive amounts of the Zimbabwe dollar.
As you can see, it is a very lovely, nicely designed currency. It is just not worth much. A few days ago you would have needed three thousand of these 500ZW$ bills to buy a single US$.

What would you do if you had a pile of the newly minted currency? If you hold on to the cash, it will soon be worth much less. Each month the ZW$ loses two-thirds of its purchasing power. There is not much left to buy because production is imploding. It takes too much time to buy property or whatever large physical assets are left. (Ever closed on a house?)

What can you buy quickly? That’s right: stocks of Zimbabwean corporations. Outside of the Republic of South Africa, Zimbabwe has (had?) the most developed financial system in Africa, actually quite decent for a developing country. So buying shares of stock can be done quickly and easily.

What we have in the Zimbabwean stock market is a very unusual bubble. The excess money supply flows very quickly into the stock market, driving up prices.

Is it time to sell stock before the bubble bursts? (Assuming you had Zimbabwean stocks.) Think about it. If you got out of the market, what would you do with the ZW$’s?

If you regularly read this blog, you know I am an advocate of indexed mutual funds for various types of stocks, bonds and property. It is pretty dull though. Of course, another down side is missing special and interesting investment opportunities that come along like the Zimbabwean stock market.

I’ll get over it. I'll take dull.

Be blessed!


Anonymous said...

In case you didn't see my reply to your comment:
Justin will be going to Norfolk, VA, after he graduates July 16. It's actually the closest place (geographically speaking) to "home" that he could be stationed, considering the other options (Georgia or Washington state).

By the way, where do I look to invest just a couple hundred dollars (with perhaps a bit more monthly) as you spoke of in a previous post?

Anonymous said...

Correction, J. graduates the 19th.

RB said...

It is very good you are planning on saving regularly. That is the most important aspect of wealth building.

What to do with it? Well, it depends on what your goal is. Do you have an emergency fund? Is it for education or for retirement?

Generally, mutual funds have are minimum investments of $2000 to $3000 for the big-name funds. However, there are a good number of funds with $500 or $250 minimums. A few even have $100 minimum investments.

The returns on these funds are not the best since they tend to have higher expenses. However they are still better than a CD or other savings account in a bank.

Contact me off-line if you want to discuss this privately.