Invest in Women (2008-01-21)

Invest in Women

(2008-01-21) by David John Marotta

Ever since communism collapsed in the early 1990s, stock markets around the world have been booming. This phenomenon is especially true in the former communist states of Russia and China. We also see it in countries that had been following the socialist model, such as India, and in former high-tariff countries like Brazil.

As students of stock markets and world economic trends, we try to determine which countries will benefit from various trends. For example, those countries with the greatest economic freedom and the highest level of gender equality also tend to exhibit superior performance in the stock market.

The World Economic Forum (WEF) conducted a study in 2005. It reported that the 10 best gender-equal countries are Sweden, Norway, Iceland, Denmark, Finland, New Zealand, Canada, the United Kingdom, Germany and Austria. These countries also scored high on the Heritage Foundation's measurement of economic freedom.

In 2006 when the Dow Jones world stock market index went up by only 19%, the stock markets of these 10 countries advanced 31.4%. Furthermore, in the Nordic countries, stocks went up 38%, twice the world average. In contrast, the United States advanced by only 19%.

In the WEF study, the United States did not fare too well in gender equality, coming in at number 17. Ranked 11 through 16 were Latvia, Lithuania, France, the Netherlands, Estonia and Ireland. The health factor dragged down the U.S. showing. Negative factors included the high number of teen pregnancies, only 12 weeks of unpaid maternity leave, high child mortality rates and the lack of quality child care.

Tax rates affect gender equality. Because of the marriage penalty in the U.S. tax code, a financially successful husband and wife are taxed as though they represent one very high income taxpayer. They must pay more for their combined income than they would if they were unmarried and just living together.

This tax disadvantage doesn't often affect the decision to get married. But it certainly may impact a wife's willingness to work. The incentive is to spend time shopping and preparing elaborate meals even if the wife's abilities could support much higher aspirations.

By combining their incomes, the couple pushes each other into the top marginal tax bracket. So for every dollar the wife earns, she could be taxed at over 50%, including federal, state and local taxes. In contrast, when the woman doesn't earn an income, every dollar the couple saves makes them a dollar richer.

Here's the bottom line. The flatter the tax system, the less it matters whether couples combine their incomes or not. That is, if every dollar of income was taxed the same and there were no deductions or credits, whether a husband and wife combined their incomes would be irrelevant.

The WEF study also rated other items related to women. These included their economic participation in society, economic opportunity, political empowerment, educational attainment and health and well-being. Americans are proud of the relatively high number of women serving in the U.S. Congress (85). But that participation rate is still 1% below the world average as measured in a WEF study of 58 countries. And it is well below the top-10 countries in the study. In fact, in the Nordic countries, 41% of the officials elected to the parliament are women.

Japan scored particularly poorly in the 128-country study, ranking 91. It suffered a 4.23% loss for 2007 and pulled the foreign EAFE index down to only 11.17% for the year. Japan has only averaged 4.48% over the past decade. It has struggled internally with both gender inequality and government regulatory intervention in the free markets.

In less developed countries, women have difficulty securing credit to start or expand businesses. You need a little money to make money. Often very small loans allow women to become entrepreneurs and pull themselves out of poverty. To facilitate this, many organizations have started giving small loans, called "micro loans," aimed at women-owned start-up businesses in developing countries.

It has been observed that loans to women more often benefit the entire family than loans to men do. Also, women are a better risk for micro loans, and providing them credit changes their societal status and offers them greater economic freedom.

A number of the countries ranked high in gender equality have exchange-traded funds (ETFs) that track their market indexes. They provide an easy and inexpensive way to invest there. ETFs combine the liquidity of individual stocks with the diversification of an index fund. They also typically have lower expense ratios than most mutual funds.

Democratic countries provide equal incentives for both men and women. As a result, women are able to participate as fully as possible in the economy. When women can pursue and achieve their own financial well-being, we see rich rewards in their country's economy and consequently the performance of their stock markets.

from http://www.emarotta.com/article.php?ID=267