Cheer up, Australia: The ASX hasn't been all that terrible over the past decade

Photo: Getty Images.

Even with a flurry of buying over the past two weeks to break out of the narrow trading range it’s been sitting in for several months, Australia’s benchmark stock market index, the ASX 200, still remains well below the record high of 6,851.5 points struck on November 1, 2007.

On face value it suggests that Australia’s stock market has been a dog of an investment, aimlessly treading water over the past decade.

Compared to the euphoric headlines overseas where stocks seem to be hitting record highs each and every session, it’s little wonder why some Australian investors fell like they’ve been dudded.

Just look at the chart below comparing the ASX 200, in blue, to the US S&P 500, in purple, over the past decade.


In percentage terms, the ASX 200 has fallen 12% while the S&P 500 has surged 71% (remembering that this is in local currency terms).

What a joke, right?

While true that Australia has underachieved compared to many other major markets, due in part to currency fluctuations, the composition of the index and monetary policy settings, another factor that’s seen the ASX 200 undershoot is Australian companies tend to pay out far more in dividends than in many other nations.

According to Commsec, using data from Bloomberg, the ASX 200’s current dividend payout ratio stands at 76.4% compared to 51.11% for the S&P 500. And Australia’s ratio was even higher as at the end of last year, standing at 85.86% compared to 53.01%.

That’s clearly demonstrated in the second and final chart below, which shows the ASX 200 Net Total Returns Index.


The difference between this index and the ASX 200 is that it includes dividends payments after deducting withholding taxes.

Compared to the ASX 200 chart, it undoubtedly looks more pleasing to investors, showing the index busting to record highs over the past week.

Craig James, Chief Economist at Commsec, says this index, rather than the headline ASX 200 index, that investors should be watching.

“Investors still remain fixated on share prices rather than total returns on shares. Clearly the latter is more important, especially with more and more companies recognising the importance of paying dividends to shareholders,” he says.

“Total returns stand at all-time highs and are up almost 14% on a year ago.”

Over the past decade the ASX 200 has returned 33% to investors, marginally more than inflation which increased by around 26% over the same period.

Certainly not great, but not a decline either.

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