The Skyscraper Index


William Thompson, Trainee Financial Planner


Situated on the Red Sea coast and home to 3.2m inhabitants, Jedda is Saudi Arabia’s second largest city, behind only the capital of Riyahd.


From 2017, Jedda will also boast the world’s largest structure, the first building to exceed one kilometre in height, the Kingdom Tower.


Whilst such ambitious and costly projects are naturally seen as a sign of prosperity, one economic theory suggests that a correlation exists between the construction of tall buildings and the onset of economic difficulties. This ‘Skyscraper Index’ has since become an annual report published by Barclays.


So what is the evidence for the claim? From 1931 to 1972 The Empire State Building in New York was the world’s tallest building at 381 metres. Completion of the tower coincided with the onset of the Great Depression which lasted almost throughout the 1930s. The World Trade Tower also in New York assumed the record at 417 metres in 1972 and one of the most severe stockmarket devaluations of the twentieth century commenced in the following January, when US stocks fell in value by 45% between January 1973 and December 1974.


The trend continued in December 2009 when Dubai went to the brink of default just two months after the completion of Burj Khalifa which at 830m is the current world’s tallest building.


Many of the emerging economies are building more skyscrapers than any other nations so


you may question whether Old Mill should be investing your savings in these economies.


As usual, the truth is somewhat more complex (and perhaps less attractive) than the headline would lead one to believe. Empirical evidence has debunked the idea that the Skyscraper Index has any predictive value and indeed academic research indicates that there are no reliable methods of predicting stockmarket movements in advance.


The good news is that there are some less glamorous but more reliable measures taken by Old Mill to ensure that your portfolios deliver the returns that you need and expect:


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Asset allocation – Whilst the reason emerging economies such as India and China are not to be feared for their output of skyscrapers is because they are growing fast, these economies are developing and companies from this region are expected to display volatility. Therefore our lower risk investors have only minimal exposure to these regions.


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Diversification – Economic adversity in a single region (or asset) will not lead to disaster for your Old Mill portfolio, which is engineered to hold up as well as possible in all conditions. By holding a mix of assets the likelihood is that where one element of your portfolio is underperforming another element will deliver strong returns.


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Discipline – If there is a lesson to be taken from the Skyscraper Index, it might be that nothing lasts forever – boom or bust. With guidance from your Old Mill Financial Planner we hope that you will persevere with the investment programme through good and bad.


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