Later this month Her Royal Highness, Queen Elizabeth the Second reaches another grand milestone, her 90th birthday. The world has changed a lot over the last ninety years but over that time, Queen Elizabeth has remained a beacon of stability as the leader of the Commonwealth.

Queen Elizabeth’s accomplishments are many, but here I would like to focus on the impact her reign has had on the stock market. In particular, the main role of Queen Elizabeth and the British monarchy has been to provide a strong and steady foundation to Commonwealth nations even as political, monetary, economic, commodity and financial trends come and go.

Positive impact of the British Monarchy on the Markets

During the early years of Queen Elizabeth’s reign, UK stocks outperformed their US counterparts particularly between the 1960s and the 1980s. The US market has been stronger in the 1990s and the 2010s boosted by the technology boom and US Quantitative Easing while their performance was similar in the 2000s.

Decades

US

UK

1900s

7.71%

 

1910s

4.58%

 

1920s

11.47%

 

1930s

1.55%

 

1940s

3.73%

 

1950s

14.10%

 

1960s

2.64%

8.39%

1970s

2.13%

14.12%

1980s

13.31%

18.50%

1990s

15.95%

11.15%

2000s

0.55%

0.29%

2010s

9.27%

4.09%

Source: CMC Markets

The chart below compares the performance of a number of major countries over the last twenty-five years. Let’s start by taking a look at the volatility column on the right. Not only has the UK market had the lowest volatility out of all the countries studies, but the second and third lowest volatility countries are Canada and Australia, both Commonwealth countries with Queen Elizabeth as their head of state. This is particularly striking considering that one would expect resource exporting countries exposed to the boom and bust of commodity cycles to have higher volatility.

The fourth lowest volatility country is the United States which is primarily an English speaking country even though it is outside the monarchy. The English speaking country with the highest return has been Ireland but it also is the one with the highest volatility, which is  more in line with its fellow Eurozone countries  

Based on this, it would appear that although countries with Queen Elizabeth as head of state may not have experienced the extreme highs of other countries’ markets, they have managed to dodge many of the extreme lows.

Stability does not mean stagnation. Compared with Japan, another monarchy who has truly been stagnant over the last quarter-century, the UK market has had a stronger return with much lower volatility.

   

average

average

   

annual

annual

Country

Monarchy

Eurozone

return

std dev

   

1990-2015

1990-2015

     

Switzerland

No

No

8.52%

21.06%

Iceland

No

No

14.77%

31.81%

United States (SPX)

No

No

8.53%

17.25%

     

United Kingdom

Yes

No

4.85%

14.75%

Norway

Yes

No

13.68%

29.87%

Sweden

Yes

No

11.12%

26.28%

Denmark

Yes

No

12.18%

24.24%

Canada

Yes

No

6.02%

16.27%

Australia

Yes

No

6.85%

16.05%

Japan

Yes

No

1.67%

22.92%

     

Germany

No

Yes

10.14%

23.92%

France

No

Yes

5.70%

21.45%

Italy

No

Yes

2.08%

22.25%

Greece

No

Yes

10.20%

43.73%

Ireland

No

Yes

9.48%

25.97%

Finland

No

Yes

14.00%

43.32%

Portugal

No

Yes

6.18%

26.94%

     

Netherlands

Yes

Yes

8.94%

23.09%

Spain

Yes

Yes

7.42%

24.27%

Belgium

Yes

Yes

7.92%

21.17%

Source: CMC Markets

Hong Kong Case Study:

The strongest evidence of the positive Queen Elizabeth has had on markets can be seen in Hong Kong which was a UK colony until 1997 after which it became part of China. Stock market performance in Hong Kong has dropped off dramatically since the handover, while volatility has remained at a relatively high level.

    

average

average

average

   

total

annual

annual

return/

Country

Monarchy

Eurozone

Return

return

std dev

risk

   

1989-2015

1989-2015

1989-2015

       

Hong Kong (British Empire 1986 - Jun 97)

Yes

No

465.54%

22.09%

35.46%

0.62

Hong Kong (China Jun 97 - present)

No

No

44.21%

6.03%

29.18%

0.21

       

Conclusion:

On this occasion of Queen Elizabeth’s ninetieth birthday an analysis of stock market performance over the last several decades shows how she has been and remains a cornerstone of stability for Commonwealth countries through turbulent times for the world at large. God save the Queen!

This commentary is based upon technical analysis.  Technical analysis is the study of price and volume and the interpretation of trading patterns associated with such studies in an attempt to project future price movements.  Technical analysis does not consider any of the fundamentals of an underlying company, and as such is inherently uncertain and should not be the only factor considered by an investor in making an investment decision. 

CMC Markets Canada Inc. is a member of the Investment Industry Regulatory Organization of Canada and Member CIPF. CFDs are distributed in Canada by CMC Markets Canada Inc. dealer and agent of CMC Markets UK plc. Trading CFDs and FX involves a high degree of risk and investors should be prepared for the risk of losing their entire investment and losing further amounts. CMC Markets is an execution only dealer and does not provide investment advice or recommendations regarding the purchase or sale of any securities. CFD and FX trading is available in jurisdictions in which CMC is registered or exempt from registration, and may be available to Accredited Investors only in certain jurisdictions.

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