Volatility has been constant on global investment markets throughout this year.

It has largely been driven by fears over surging inflation, rising interest rates, energy price shocks, the likely prospect of recessions, and geopolitical events such as the Russia-Ukraine war.

And all of those factors, among others, have combined to fuel investor nervousness, sparking market sell-offs that have caused widespread falls in many asset prices.

But not every investment market in the world has suffered. Some have actually gained ground.

Furthermore, different asset classes, and sectors within asset classes, have outperformed others.

Which is a timely reminder, as we near the end of 2022, that diversification across different markets and across different types of assets can help to reduce volatility and deliver smoother returns over time.

It’s a point that we emphasise every year with the release of a chart showing the importance of diversification, which accompanies the widely used annual Vanguard Index Chart.

What’s clear from the diversification chart is that the best and worst-performing asset classes varies from one year to the next.

Not only that, sometimes the best-performing asset class in one year can be the worst-performing the next.

How have share markets performed?

There have been wide variations in the performance of different stock markets this year, for a whole range of reasons.

The Australian share market, measured by the All Ordinaries Index, has fallen around 6.5 per cent year-to-date.

However, while our share market has slipped this year, largely as a result of the same economic factors gripping other developed countries, still-strong prices for our major commodity exports have provided some relief.

In addition, investors in our market have continued to benefit from the strong dividend payouts from ASX-listed companies, which in the 2021-22 financial year totalled more than $42 billion.

Another tailwind has been the 8 per cent fall in the value of the Australian dollar against the US dollar, which has helped many commodities exporters because their exports are priced in US dollars.

By comparison with Australia’s 6.5 per cent market drop , the United States share market, using the S&P 500 Index as the benchmark, has fallen more than 17 per cent this year.

It has been heavily impacted by economic sentiment, particularly over interest rate hikes, but also by the revaluation of mainly its largest technology companies, which have been trading on high price-to-earnings ratios.

So, which share markets have been the best performers in 2022?

Continued strong economic growth in India (6.8 per cent in 2022) – and a return of foreign investors – have been the key drivers behind that country’s share market recording a gain of around 6 per cent.

The Indian market, measured by the BSE Sensex Index, has outpaced Brazil’s, which measured by the Bovespa Index has gained just over 3 per cent. Brazil, like Australia, is a major commodities exporter.

Coming in behind India this year has been the United Kingdom, which despite economic and political upheaval has largely held its ground by recording a slight loss of 1.0 per cent year-to-date.

A number of the companies in the UK’s FTSE 100 Index have recorded broad gains, with the energy and tobacco sectors being notable strong performers.

From there on, the world’s other major share markets have all recorded higher negative returns.

Standouts are China (which has fallen around 12 per cent due to COVID-related restrictions, U.S. trade and political tensions, and the global economic slowdown), and Switzerland, which is down almost 15 per cent (amid concerns over interest rate rises and higher bond yields).

The U.S. market, as indicated, has performed poorly on a broad level. Measured by the Dow Jones Industrial Average (the Dow Jones), which only tracks 30 selected U.S.-listed companies, it has fallen by 7.7 per cent.

Major stock indexes: Past year performance*