PICK A FIGURE in the millions for the number of investors searching every day for that elusive modern Holy Grail, the leading indicator that will truly give them an edge over the competition on where share prices are headed next. Here is a secret for you. There is indeed such a Holy Grail, the best leading indicator by far of coming financial and economic trends. Trouble is it is the wrong one. It is the stock market itself. Now if only someone could figure out a way of making money by using stock market indices to predict money supply trends or likely changes in economic growth rates we could all be rich. How ironic that the best leading indicator of them all is actually the one to which people wish to be led. We shall use it today in the reverse sense in which it works as an indicator of economic performance to see how well we have done in Hong Kong relative to the rest of Asia. The first chart sets out the story. It shows the performance in US dollar terms of the Hang Seng Index relative to the weighted average of all stock markets in Asia outside of Japan. Start with a base of 100 in January 1990 and the latest figure is 551. In other words you would have done 5.5 times as well over that period putting all your money in the Hong Kong market as spreading it across Asian markets. The curved line on the chart shows you your compound average rate of outperformance since 1991, 10.5 per cent annually and that would be 15 per cent if you took it back to beginning of 1990. In fact the actual story is even better. That Asian average includes Hong Kong. Take it out to show Hong Kong only against the others and the line would go even further up. It would go further yet if you assume re-investment of dividends. Hong Kong has consistently paid a higher dividend yield than the other markets. Now do it all again to include the only other market that you could possibly say comes even close, Singapore. The second chart shows you how distant second place is. Singapore matched Hong Kong in outperformance for the first half of 1990 and then went flat. You did slightly better in Singapore than the regional average since 1990 but not enough to make a real difference. So let's hear again how bad things are in Hong Kong and how the boom days are gone for good. Let's also hear how many times we have heard this refrain over the past 10 years. We've had it good, folks. This stock market relative performance indicator of how well we are doing may be in error for the stretch of a year or two at a time but over almost 12 years it tells no lies. You are living in what has consistently been Asia's most successful economy. And as to the future, well, look at the lilies of the field for they sow not, neither do they reap, yet their heavenly father . . . and you can read the rest of the Sermon on the Mount's lessons on worrying about the future yourself. For my part, I think nothing much has changed. I am not a worrier. Graphic: jake24gbz
