Opinion: If you want to own international stocks, invest in these three countries instead of China

This weekend, countless audiences will see among America’s most well-known business owners, Elon Musk, co-founder and CEO of Tesla, host “Saturday Night Live.”

On the other hand, China’s best-known business owner, Jack Ma, co-founder of Alibaba Group, has actually appeared simply when in public in the last 5 months after the all-powerful Chinese federal government introduced a regulative offensive versus his monetary services business Ant Group.

This, in a nutshell, informs you why the U.S., for all its issues, is an excellent location to invest, while China, for all its strengths, is a bad one: The U.S. motivates development while China squashes it.

This column has actually argued for years that financiers ought to put the majority of their cash into U.S. stocks and prevent emerging markets, of which Chinese stocks make up approximately 40%. U.S. stocks have actually surpassed emerging and established markets by a big margin over the previous 12 years which’s most likely to continue as we emerge financially strong from the COVID-19 pandemic.

And yet for many years U.S. financiers have actually pulled cash out of exceptional U.S. stock funds while shoveling dollars into delayed global and emerging-markets funds. In 2015 alone, according to Morningstar, financiers tugged $241.2 billion out of U.S. stock funds, almost 4 times as much as they withdrew from global stock funds.

It’s OKAY to desire some global diversity in your stock holdings, and if China and emerging markets won’t suffice and Europe and Japan are too stagnant, where should you look?

3 nations — Australia, New Zealand and South Africa — have an extremely long performance history of stock efficiency as great as or much better than the U.S., with a comparable threat profile. They each have actually devoted ETFs you can purchase also, although with yearly management charges north of 0.5% they’re more costly than, state, the U.S.-focused Lead Overall Market Index ETF
VTI,
+0.85%,
which charges a simple 0.03%.

3 of the world’s leading scholars on asset-class returns have actually preserved a database on 32 various nations’ markets, some returning as far as 1900. Elroy Dimson, Paul Marsh, and Mike Staunton established the database at the London Organization School and upgrade it each year for the Credit Suisse Global Financial Investment Returns Yearbook. The table listed below programs their information on these 3 exceptional markets since completion of 2020.

Throughout the whole 121-year duration from 1900 through 2020, South Africa has actually been the world’s leading stock exchange (in regional currency terms), with a 7.1% substance yearly return. Australia is runner-up, returning 6.8% per year, while the U.S. surfaces 3rd, with a 6.6% annual return, simply edging out New Zealand’s 6.4%. And the efficiency of all 3 markets corresponds over the last 20 and 50 years, too, throughout which South Africa did especially well, even as the nation has actually been racked by political turbulence.

In a mineral-starved world, South Africa is a bonanza—gold and diamonds, naturally, however likewise manganese, platinum, coal and iron ore. Yet its market is well balanced in between innovation (30% of market capitalization), financials (28%) and raw materials (22%). While still an emerging market, South Africa’s risk level is in line with developed markets: Its standard deviation, a common measurement of volatility, is 21.8% over the whole 121-year period, just slightly higher than the U.S.’s 19.9%. The iShares MSCI South Africa ETF
EZA,
+2.07%
had a total return of 81.9% in the 12 months ended March 31.

Australia has long been known as “The Lucky Country” and until COVID hit it hadn’t experienced a recession in nearly 30 years. It avoided one during the financial crisis because of its trade with China, which accounts for 11% of Australia’s GDP (vs. roughly 4% for the U.S.)

It is among the world’s three largest exporters of iron ore, coal, zinc, gold, uranium and aluminum. Financials represent the largest component of the iShares MSCI Australia ETF
EWA,
+1.13%,
with 35% of exposure, followed by fundamental products (20%) and healthcare (10%).

One big potential threat: rising trade tensions with China could hurt Australia’s economy, but this country’s century-long track record suggests it would find a way to cope with that, too.

New Zealand, another established Asia Pacific island nation, is much smaller than Australia, but it has posted strong stock returns. The Heritage Foundation rates its economy the second-freest in the world (Australia ranks third), and it emerged almost unscathed from COVID. The iShares MSCI New Zealand ETF
ENZL,
+1.12%
is surprisingly diversified, with almost 3-quarters of its holdings in healthcare, utilities, industrials, and communications.

I could easily see getting your international equity direct exposure from these three countries, however you might also explore the Global X FTSE Nordic Region ETF
GXF,
+2.21%,
which covers the most innovative economies and best-performing markets in Europe, or the Columbia Emerging Markets Core ex-China ETF
XCEM,
+1.70%,
which lets you invest in emerging markets without China. I don’t own any of these international ETFs however might purchase some in the weeks ahead.

Howard Gold is a MarketWatch writer. Follow him on Twitter @howardrgold1. The only security discussed in this column that he owns is VTI.

Jobber Wiki author Frank Long contributed to this report.