Global Investment Return Yearbook 2019
This year Global Investment Return Yearbook 2019 has just been released by Credit Suisse.
Long Term EM Returns
The GIRY categorizes countries as emerging depending on their GDP per capita. For instance, Japan was an emerging market until 1964, Singapore until 1970 and Hong Kong until 1977.
The emerging markets underperformed developed markets by 1% annualized rate since 1900. Much of the underperformance is due to the impact of WWII.
Chinese Stock Market since 1990
The study looks into Chinese stock markets performance: the Shanghai exchange which has A-shares, Shenzhen exchange with smaller and tech companies, and Hong Kong exchange with H-shares.
A 2% underperformance of A-shares is attributed to adverse selection (Tencent, Ali Baba, Baidu listed in the US), excessively demanding listing rules (which encourage window dressing while financial reporting correctness is insufficiently enforced.
Finally, the authors note that the MSCI China 1.1%, the SP China BMI 7.4%, and FTSE China 10.3% have widely different performance.
image credit: wikicommons
Long-term Developed Market Performance
For the first time since GIRY is published, both the geometric mean, arithmetic mean and standard deviation of returns is available. We see that equity real (inflation-adjusted) returns are between 4.2% and 6.4% for a standard deviation between 17% and 30% and an equity Sharpe ratio of 0.29.
In contrast, bond returns were 1.9% worldwide for a standard deviation of 11%, leading to a Sharpe ratio of 0.17. It is not clear that Russian bonds default in 1917 is included in this calculation.
These returns are before tax which is levied against nominal returns, not real returns. Most diversified bond investors lost money after tax.
Bonds were indeed the dominant investment vehicle from the Napoleonic wars to the great depression. It is only after WWI defaults, inflation and the great depression that many came to see that equity had become the dominant investment asset.
The report gives the recent performance of factors that have been identified by empirical academic studies: those are low vol, size, income, momentum, and value.
The authors' conclusion is that factor timing is difficult. In particular, value stocks have underperformed for 10 years now.