2018 worst year for returns for a decade, research shows
Last year was the worst for returns from global equities since the financial crisis, according to research published by Credit Suisse.
The bank’s Global Investment Returns Yearbook, compiled with the London Business School, provides long-run return data and risk premiums.
Its latest edition, published on Tuesday, found returns from global equities declined 9% in 2018. It said: “The accommodating monetary environment and conditions of low volatility that provided the comforting backdrop for the extended bull market conditions we have seen for a decade or so have reversed. There are plenty of signs that corporate profitability has passed its cycle peak.
It also argued that trade disputes were a growing concern: “The international confrontations over global trade have brought into focus a source of market and economic risk that few investors have had to contemplate before. The economic benefits of permissive global trade had been taken as a given.”
The authors assessed investment returns since 1900, and found that the equity risk premium during that period was just over 4%. Equities remained the best long-run financial investment globally, despite the disappointing 2018, ahead of bonds at just above 5%.
Looking ahead, the authors said that with global interest rates still low, returns would remain constrained. “In documenting the long-run history of real interest rates in 23 countries since 1900, the study shows that when real rates are low, future returns on equities and bonds tend to be lower rather than higher.”
It added, however, that shifts into new interest rate environments “can see step changes in returns as investors reset their future expectations. While the immediate concerns on interest rates may have abated in this early part of 2019, this is still a scenario to keep foremost in mind.”
The authors argued that investors should factor in an annualised equity premium relative to cash of around 3.5% looking ahead. “If this is disappointing based on recent history, it still points to equities historically doubling relative to cash over 20 years.”