Why should I double check data from 2009 if the chart that I posted is the chart starting mid 1999. The chart was correct. The S&P500 was at around 1,400 back then and now at 7,700.
And that dividends are not included I stated as well in my comment. I even added the information that the outperformance of the Indonesian stock market is even bigger if you add the dividends - which means that the chart of both indices was exclusive dividends. If you add dividends to both the Indonesian index as well as the S&P500 the outperformance is even bigger because the dividend yiel was bigger in Indonesia in that timeframe.
I also stated that the chart of the Indonesian index is in IDR. And I stated that the an outperformance is still existent if you adjust it by the currency exchange rate's change, although the outperformance is less then, of course. But all already stated here before in my post.
Ok, let do simple step by step calculation by running the Math using your own figure. I believe most people with basic Math could understand it:
Say you had $1,000 in 1999 to invest:
1. S&P 500
1999 Baseline: S&P 500 was at US$1,400.
Current Level: S&P 500 is at US$7,700.
Index Growth: 7,700/1,400=5.5x growth in price alone.
Result: Your $1,000 becomes
$5,500 (before dividends).
2. IDX Composite (IHSG)
1999: You convert your $1,000 at the 8,000 IDR/USD exchange rate, you will get Rp 8,000,000 invested in Indonesian stocks.
Index Growth: In local currency, the Indonesian stock market grew 5,100/600 = 8.5x growth in price alone.
Result: Your Rp 8,000,000 grew to Rp. 68,000,000
Convert it back to US Dollar. The Rp. 68,000,000 after conversion to become the US Dollars at the rate of 18,000 IDR per $1, it will become Rp. 68,000,000/18,000 =
$3,777 (also before dividends).
$5,500 vs $3,377 which one win ?? Could you see it now ??
The fallacy here is because some people might not realise the impact of currency depreciation. If the Exchange Rate are Moving from 8,000 to 18,000 per dollar it represents represent a 55% loss. This 55% loss will need to rise by
122.2% (
NOT 55%) to return to its original value. See the calculation below
- Original value: 100
- After a 55% decline it becomes 45
- Required increase is 100-45= 55 so in percentage: 55/45×100%=122.2%
- New value: 100
Yes dividend have not been included and the average historical dividend yield from the IDX Composite is larger than S&P 500 (say 3% vs 1.85%. But keep in mind the dividend will also need to be converted back to US$. if the company do not make profit there is high probability they will not pay dividend.
Another thing to keep in mind is that when you plot a graph over a very long period, a linear scale can make the earlier, smaller values look insignificant compared with the much larger figures in later years. This is why a logarithmic scale is often used for long-term stock market charts, as it makes percentage changes easier to compare over time.
