International Stock Market Returns, Local Currency

Chart above (click to enlarge) shows 5-year stock market returns from 50 countries in local currency, using the MSCI/Barra database for international stock markets. In a recent post, a similar chart showed the 5-year returns for the same countries in US dollars. Of course, because the dollar has fallen over the last 5-years by 19% vs. a broad currency index, and by 31% vs. a major currency index, the 5-year returns in USDs are greater for most countries than the 5-year returns in local currency.

An anonymous commenter pointed this out, and wrote "Citing incredible growth in nominal terms without referencing the weakness of the underlying currency might just be enough to win you a spot on 'Zimbabwe Tonight'." Here are some comments in response:

1. The original post and graph were based on a recent NY Times article about the 5-year returns for foreign stock markets (in USD) vs. the 5-year return on the S&P500 (in USD).

2. In USD terms, the U.S. market (13.58% 5-year return) ranks #50 of the international stocks markets available through MSCI.

3. In local currency terms, the U.S. stock market returns rank #45 out of 50 countries, still close to the bottom of the list.

4. Almost 25 countries had 5-year returns in local currency that were double the U.S. return of 13.58%, without any currency appreciation effects.

5. For U.S. investors, only USD returns really matter, so the first chart in the original post with returns in USD is more important than the chart above with returns in local currency.