There is no correlation between a country's GNP growth and its stock exchange, yet one would expect that in a very prosperous, growing country like China (GNP 9.2% for 2011. Source: Economist) company values should at least rise modestly (they declined 17.9%). Argentina grew 10.2% and its stock exchange lost 36.6%. South Africa, thanks to gold prices, grew 3.1% yet it stocks sank 22.5%. Israel grew 4.4% and prosperity is felt all over the country, yet the stock exchange fell 26%. In our case we know that foreign investors withdrew their funds because of regional uncertainty (notwithstanding that we had the quietest year of the last decade).
The question is if this is a real incongruency and it will tend to balance itself out during the next year? I would say that in relation to the past, the above countries's stock is undervalued and are due to rise next year. Their companies are making money and paying dividends. At least that is the case of Israel.
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Warren Buffett said, "In the short term the market is a voting machine, in the long term it's a weighing machine".
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