As we celebrate the UK’s longest reigning monarch, Elizabeth II, we look at whether having a monarch, as opposed to being a Republic, plays any part in a country’s stock market performance.
Within the report we discuss:
• The role and popularity of the monarchy
• The stock market performance of other European countries with monarchies
• How individual monarchies and non-monarchies have performed in and outside of the Eurozone
• How Hong Kong’s stock market has performed since switching from having a monarchy
Later this week Queen Elizabeth II becomes the UK’s longest reigning monarch, as she surpasses Queen Victoria.
The role of the monarchy has always tended to divide opinion, especially at a time when state budgets are being squeezed, but certainly in the context of British history, the monarchy is generally cited as one of the reasons that London attracts so many overseas visitors
. The monarchy is part of the rich tapestry of British history as well as the political stability that attracts so much inward investment.
While the British monarchy has endured its rough patches in recent years, its popularity continues to be one of the enduring factors in British history,
and that is largely down to the respect, in which Queen Elizabeth II is held here in the UK.
It is indeed hard to believe that there are some who would prefer the type of state hierarchy seen in France where President Francois Hollande is held in such low regard.
Queen Elizabeth II and monarchs in general, have tended to be more popular than politicians,
though this sentiment was tested in Spain most recently, following the recent abdication of King Juan Carlos, in favour of his son, after being pictured on a safari in Botswana, at a time when the country was in the midst of a severe financial crisis.
The rise of far left anti-austerity party Podemos in the last few years has seen the return of the symbol of Spanish republicanism at a number of political rallies, and it could lead to republicanism gaining greater traction, if economic conditions in Spain don’t show signs of significant improvement in the coming years.
It’s also been notable, which compared to Republics, monarchies seem to perform better when it comes to the stock market.
This week’s milestone in British history also begs the question as to whether we’ll see the like again in terms of longevity for a reigning monarch.
This is because citizens could increasingly look to question the relevance of monarchies at a time when budgets are under pressure and welfare costs continue to rise, as governments try and ride a tide of deteriorating demographics, as well as rising costs.
Across Europe we still have what are known as constitutional monarchies,
which means that the reigning monarch doesn’t influence the politics of the state, and by and large citizens seem to prefer the option of the pomp and grandeur of a monarchy over that of a Republic, where the head of state or President gets involved in the everyday grubby and sleazy nature of politics, and where a lot of politicians are no more popular than a nasty dose of influenza.
The other monarchies in Europe are in Belgium, Denmark, Netherlands, Norway, Spain and Sweden, and comparing the economic performance of these countries since 1990 makes for some interesting comparisons.
Looking at the stock market performance of the best performing monarchies the laggards appear to be Belgium, Spain and the Netherlands, all countries that have struggled to escape the clutches of a financial crisis in Europe, and also coincidentally members of the Eurozone.
The best performing stock markets have been the FTSE250 as well as the Swedish and Norwegian benchmark indexes, with a lot of the outperformance coming in the time since the turn of the century.
While the FTSE250 has outperformed in the last 15 years the FTSE100’s performance has left a lot to be desired, but given its fairly high gearing to global resource and banking stocks it has been hardest hit by the 2008 financial crisis and subsequent sell-off on basic resource stocks, and is largely acknowledged to not be wholly representative of the UK economy.
The Norwegian and Swedish benchmarks have also performed well in the years since the beginning of the century and this performance along with the performance of the FTSE250 would appear to suggest that economies tend to do better when policymakers have independent control of their own currencies and are able better to cope with any fiscal shocks to their financial systems.
Comparing individual countries/monarchies to non-monarchies inside and outside the euro
Looking at results from specific countries also highlights a number of differences between monarchies and non-monarchies:
Source: CMC MarketsBritish Isles:
| Average || Average || Average |
| Total || Annual || Annual || Return |
| Country || Monarchy || Eurozone|| Return || Return || Stand. Dev || Risk |
| 1989-2015 || 1989-2014 || 1989-2014 |
| Switzerland || No || No || 397.97% || 8.93% || 21.38% || 0.42 |
| Iceland || No || No || 198.48% || 13.71% || 32.13% || 0.43 |
| United States (SPX) || No || No || 458.64% || 8.9% || 17.49% || 0.51 |
| United Kingdom (FTSE100) || Yes || No || 157.93% || 5.24% || 14.91% || 0.35 |
| Norway || Yes || No || 416.50% || 14.28% || 30.58% || 0.47 |
| Sweden || Yes || No || 621.63% || 11.61% || 26.68% || 0.44 |
| Denmark || Yes || No || 807.69% || 11.22% || 24.23% || 0.45 |
| Canada || Yes || No || 249.18% || 6.70% || 16.22% || 0.41 |
| Australia || Yes || No || 232.86% || 7.25% || 16.29% || 0.45 |
| Japan || Yes || No || (20.79%) || 1.36% || 23.34% || 0.06 |
| Germany || No || Yes || 473.13% || 10.16% || 24.40% || 0.42 |
| France || No || Yes || 132.48% || 5.59% || 21.87% || 0.26 |
| Italy || No || Yes || (10.09%) || 1.46% || 22.74% || 0.06 |
| Greece || No || Yes || 35.95% || 11.55% || 44.06% || 0.26 |
| Ireland || No || Yes || 264.96% || 8.66% || 26.15% || 0.33 |
| Finland || No || Yes || 418.07% || 14.13% || 44.17% || 0.32 |
| Portugal || No || Yes || 75.37% || 5.97% || 27.53% || 0.22 |
| Netherlands || Yes || Yes || 227.21% || 9.14% || 23.54% || 0.22 |
| Spain || Yes || Yes || 241.97% || 8.01% || 24.57% || 0.33 |
| Belgium || Yes || Yes || 246.30% || 7.72% || 21.59% || 0.36 |
comparing the UK with Ireland (monarchy no Eurozone vs republic Eurozone) shows Ireland outperformed on total return but was more volatile and UK outperformed after accounting for risk, though if you take the FTSE250, which showed returns in excess of 450%, then the UK also compares quite favourably.
: comparing Finland (republic Eurozone) versus Norway, Sweden and Denmark (monarchy non-Eurozone) showed that even though Finland was near the top on average return, it lagged far behind the other three (which were similar to each other ) on a risk adjusted basis.
Mediterranean Countries: Spain, a monarchy,
outperformed Eurozone republic neighbours Portugal, Italy and Greece by a wide margin on both average and risk adjusted returns.
Eurozone Core Countries:
monarchies Netherlands and Belgium outperformed republican France but underperformed Germany. This survey also shows just how great the Euro project has been for Germany relative to its partners.
the non-monarchy side came out on top with the US far and away the top performer adjusted for risk, while the monarchies were dragged down by Japan’s struggles. Canada and Australia (monarchies) had moderate returns but also moderate risk and were among the better performers on a risk adjusted basis, similar to Germany and Switzerland.
English speaking countries:
The four countries with the lowest standard deviations (volatility and risk) were all English speaking (US, UK, Canada, and Australia) and the one English speaking country with higher risk was Ireland, also the only English speaking Eurozone member.
Hong Kong: a special case study
Having switched sides from the monarchy camp to the non-monarchy group within the last 25 years, Hong Kong provides a particularly interesting example.
Source: CMC Markets
| Average || Average || Average |
| Total || Annual || Annual || Return/ |
| Country || Monarchy || Eurozone || Return || Return || Stan.Dev || Risk |
| 1989-2015 || 1989-2014 || 1989-2014 |
| Hong Kong (1986-1997) || Yes || No || 465.54% || 22.09% || 35.46% || 0.62 |
| Hong Kong (China 97) || No || No || 42.60% || 6.76% || 29.81% || 0.23 |
The table above shows that despite people voting with their feet and moving elsewhere and all of the worrying about what might happen, the Hang Seng went on a tear in the 10 years leading up to the changeover in power. In the 18 years since China took over, despite an economic boom on the mainland, the Hang Seng has struggled. Based on this, the Hong Kong market performed much better under a monarchy than since the change, though that may also have had more to do with the fact that there was much greater political stability, prior to 1997
For the most part, (with the exceptions of the US, Switzerland and Japan), this study showed that in general stock markets in countries with monarchy governments have outperformed those in countries that are not monarchies after adjusting for volatility, particularly in Europe.
At the same time, with the exception of Germany, countries outside of the Eurozone have outperformed those within the currency bloc.
This would suggest that the political stability of a constitutional monarchy along with the flexibility of not being tied down by restrictive Eurozone monetary and fiscal policy can help to boost stock market performance over the long term.
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