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Abnormal returns

Thursday, February 23, 2017 9:20
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The 2017 Credit Suisse Global Investment Returns Yearbook (CS-GIRY) has been released.  This is the kind of message part of the investment community is looking for in the second half of February.
So far the good news. From this year onwards, the complete CS-GIRY is restricted to CS clients. For wider circulation a CS-GIRY summary version is available. However, stop lamenting; the summary version counts 60 pages, whereas the complete 2016 was 72 pages long. I think I can live with that.
I found the link on a webpage of ‘Abnormal returns’, where you can download the 2017 CS-GIRY summary.

Geographical breakdown

The 2017 focus is illustrating to what extent the US stock market over the past 116 years has been exceptional, hence not representative for worldwide returns.  The geographic breakdown of the market capitalization at the dawn of the 20th century is quite varied, with several important industrial nations worldwide. The UK leads with 25%, followed by the US (15%) and Germany (13%). Countries included in the CS-GIRY yearbook accounted for 98% of the global market capitalization.

The situation has turned upside down by now, where the US dominates with 53.2% of the global market cap, far ahead of Japan (8.4%) or the UK (6.2%). Also notable is that 8.6% of the global market cap is not covered by the  CS-GIRY yearbook, despite including China. Moreover, quite a few European countries that were prominently ranking in 1900 have been swept in the ‘smaller yearbook contributions’ in 2016. Those include Austria, Belgium, The Netherlands and Italy. Two world wars have fundamentally altered the scene.

Sector rotation

When breaking down the 1900 market cap (both in the UK and the US) according to economic sector, the 1900 situation is dominated by railroad companies. Those have dwindled near zero in the UK and to about 1% in the US.  The sector breakdown is quite more varied in 2016, with several industries non-existing over a century ago.

Bonds – Equity rivalry

Since 1980 bond returns have been exceptional as several major countries transitioned from a high inflation/high interest rate environment to a low inflation / near-zero interest rate environment.
Related returns are exceptional in nature and almost certainly not representative for the decades to come.  Because of two equity bear markets since 2000, bond markets posted higher 21st century returns than did stock markets in quite a few of the countries covered in the CS-GIRY.


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