Question

In the past 20 years , the best performing stock markets have been found in countries with the highest economic growth rates. Should the current growth rate guide you in choosing stock markets if the world capital market is efficient?

Answer 1

The performance of stock markets is directly related to the performance of the economy as a whole. Although other factors affect the stock markets, the economy of a country plays a major role.

So, certainly, the current growth rate of the economy as measured by the GDP growth should guide us in choosing the stock markets that are expected to perform well.

Assuming the world capital market is efficient, we can expect the money to flow into the country which has the potential to grow. This influx of money will further contribute to the performance of the stock markets in that country.