In 120 years, equity returns have outpaced bonds & bills: Credit Suisse

Adjusted for inflation, equities as an asset class have returned 5.2 per cent on an annualised basis over the past 120 years (since 1900), outpacing the returns by bonds at 2 per cent and bills at 0.8 per cent, says the latest Credit Suisse Global Investment Returns Yearbook 2020.

The countries included in the Yearbook represented 98 per cent of the global equity market in 1900 and still represent over 91 per cent of the investable universe at the start of 2020. In all, Credit Suisse has included 23 countries for the study as a part of this Yearbook.

Over the past 120 years (since 1900), equities have outperformed bonds, bills and inflation in 21 countries. For the world as a whole, equities outperformed bills by 4.3 per cent per year and outperformed bonds by 3.1 per cent per year.

However, over the last decade, global equities performed well with an annualised real return of 7.6 per cent, as compared to real return of 3.6 per cent from bonds, Credit Suisse says. As regards bonds, Sweden has been the best-performing country in terms of real bond returns, with an annualized return of 2.7 per cent since 1900, followed by Switzerland, New Zealand and Canada with annualized returns of 2.4 per cent, 2.3 per cent and 2.2 per cent, respectively, the Credit Suisse study says.

“2019 was a superb year for equities, with the Yearbook world index returning 28 per cent (measured in US dollar terms). The best performing market was Russia, with a return of 56 per cent (in US dollar terms), followed by Switzerland at 33 per cent. The US equity market gave a return of 30 per cent. Despite very low start-year yields, bonds also performed well in 2019, with returns of 12 per cent in the US, 9 per cent in the UK and Switzerland, and just over 10 per cent (in US dollar terms) on the world index,” wrote Richard Kersley, head of global thematic research at Credit Suisse in the Yearbook 2020 co-authored with Nannette Hechler-Fayd'herbe, their chief investment officer for International Wealth Management.

Region-wise breakup

Among regions, Australia’s stock market achieved an annualised real return of 6.8 per cent per annum since 1900, in US dollar terms, making it the world’s best performing stock market, ahead of the US, South Africa and New Zealand. While India, Credit Suisse says, was added to this study in 1955, while China and Russia were added to the database in 2013.

The US, according to the study, remains the world’s largest equity market and accounts for over 54 per cent of the world’s investable, free-float market capitalisation (m-cap), followed by Japan at 7.7 per cent, the United Kingdom at 5.1 per cent in third place, and China at 4 per cent.