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Investment yearbook

The annual Global Investment Returns Yearbook, co-authored by Professor Elroy Dimson of Cambridge Judge, finds that 2018 was the worst year for global equity returns since the financial crisis, while investors in Chinese stocks have received no premium despite the country’s economic growth.

Investment yearbook
Professor Elroy Dimson, Cambridge Judge Business School
Professor Elroy Dimson

2018 was the worst year for returns from global equities since the global financial crisis, with a decline of nine per cent, according to the publication, co-authored by Professor Elroy Dimson of University of Cambridge Judge Business School. The Global Investment Returns Yearbook is published annually by the Credit Suisse Research Institute.

The yearbook, published on 26 February at an event in London, also found that despite China’s robust economic growth, global investors in Chinese stocks have received returns just in line with other emerging markets and developed markets, while domestic Chinese A-shares have underperformed.

The yearbook, which for the first time included a dedicated chapter on emerging and frontier markets, said that China “will, and should, remain an emerging market until it resolves international investors’ concerns over its markets and access to them. Investors need markets to be categorised in ways that reflect investability and accessibility.” The report notes that there are large divergences between share price indices in China, so the benchmark for performance varies greatly and investors have difficulty selecting the best measure.

The yearbook is published by the Credit Suisse Research Institute in collaboration with three academics – Professor Elroy Dimson, Chairman of the Centre for Endowment Asset Management at Cambridge Judge Business School, and Professor Paul Marsh and Dr Mike Staunton of London Business School. The yearbook looks at comparative returns over the past 119 years, since 1900, to provide a long-term perspective.

The yearbook finds that equities remain the best long-term financial investment globally, ahead of bonds and bills, enjoying an inflation-adjusted return of just over five per cent. The authors predict that the margin by which equities are likely to outperform cash in the future will be lower than the 119-year historical premium of 4.2 per cent per year, with a long-run estimate of 3.5 per cent.

The report finds that emerging markets have underperformed developed markets over the long term since 1900, but that since 1950 emerging markets have outperformed developed markets by just over one per cent per year. Emerging markets have, however, underperformed developed markets over the last decade due only to the “outstanding” performance of the US.

Over the past 40 years, today’s emerging market countries have almost doubled their share in world purchasing power parity (PPP) GDP from a quarter to nearly half, while emerging markets and frontier markets together now account for 55 percent of world PPP GDP and 68 per cent of global population. However, their combined weight in global equity indexes remains “remarkably small” at 12.2 per cent, down slightly from 12.4 per cent in 2007 (after increasing from two per cent in 1980).

In a statement, the three authors said: “We are excited to extend the yearbook’s coverage to include emerging markets with a long stock market history. We are committed to providing long-term evidence on global markets and to addressing issues that are crucial for today’s investors. Given the dynamics behind current population trends, emerging markets can only grow in relative importance and investors should recognise the opportunities and risks. Emerging markets are likely to offer a more bumpy ride for investors than developed markets, but our research underlines the importance of a diversified portfolio and regular reviews.”