Credit Suisse Global Investment Returns Yearbook 2019 (Summary Edition)

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Credit Suisse Global Investment Returns Yearbook 2019 (Summary Edition)

Post by siamond » Thu Feb 28, 2019 10:21 am

The 2019 edition of this famous report is available and its summary edition can be downloaded here: ... 01902.html

In the free (abridged) version, there are plenty of considerations about Emerging Markets (EM) vs. Developed Markets (DM), including a full section about China. Something I had never realized (although it's obvious when we know!) is that the perceived underperformance of EM over the past 120 years (7.2% nominal CAGR against 8.2% for DM) is overly skewed by the post-WW-II singular events, the 98% collapse of the Japanese market plus China turning communist and closing its stock market. From 1950 to 2018, according to the authors, EM achieved an annualized nominal return of 11.7% versus 10.5% from DMs though (checking another source, the US returned ~11% nominal for the same time period).

There is also an article about historical equity risk premium and maturity premium, although it seems to be rehashing material that was already covered in past editions.

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Re: Credit Suisse Global Investment Returns Yearbook 2019 (Summary Edition)

Post by AlohaJoe » Wed Mar 13, 2019 8:46 pm

Some highlights from the report

Emerging Markets & market weighting

GDP of "other" (darkest blue) developed (dark blue), frontier markets (lighter blue), and emerging markets (lightest blue) over time.


The same but looking at market cap instead of GDP

While EMs and FMs together account for 55% of world PPP GDP, some 40% of world GDP at market exchange rates and 68% of the world’s population, their combined weighting in global equity indexes is still remarkably small, at around 12%
Their explanation:
  • free-floating weighting disproportionately affects EM stocks. "the average free- float for EMs (42%) is less than half that for DMs (89%)"
  • indexes screen out individual stocks (e.g. for liquidity or quality reasons), which also disproportionately affects EM.
  • These two things alone eliminate 50% of the entire EM market cap. In other words, "If there were no exclusions, restrictions, or application of free-float weightings, we estimate that the overall weighting of EMs would be roughly double [ed: e.g. 24% instead of 12%]"
  • "The underperformance of EMs was almost entirely driven by the outstand- ing appreciation of the United States. EMs performed broadly in line with the World on an ex-USA basis"
Emerging Markets & currency & PPP & hedging

The authors repeat their argument from previous editions that long-run investors shouldn't hedge; especially if you are domiciled in an Emerging (or Frontier) market.
This greater volatility can matter a great deal over the short run, and may justify consideration of hedging currency exposure. However, long-horizon investors are already protected to some extent by the PPP relationship.

As we explained in the 2012 Global Investment Returns Yearbook, currency hedging will at best reduce risk by a small margin and, at worst, may prove counterproductive. Investors domiciled in EMs hedge currency exposure less than their DM counterparts, and the strength of PPP lends support to that policy. As in DMs, the better strategy for risk reduction is diversification across EMs, and between EMs and DMs, a topic we study in detail in the 2019 Yearbook
Emerging Markets & long run returns

They construct an index of EM returns from 1900-2018. Most such attempts rely on MSCI data from the mid-1980s, so this substantially extends the time horizon.


EM underperformed for a half a century. And then outperformed for half a century.
  • 1900-1917: EM outperformed but then got hurt by the Russian revolution
  • 1920s: EM underperformed during global bull market
  • 1930s (early): EM outperformed during the Wall Street Crash (of course "outperformed" here means "crashed less")
  • 1935-1945: EM & DM performed the same
  • 1945-1950: EM gets destroyed by WW2. Japan & China were the two biggest losses (98% & 100%).

There's also a long section on China, which was interesting but a bit out of scope for most Boglehead investors, since (with the exception of the US) we rarely care or argue about specific country invests. Anyway, go read the report if you want to learn more about investing in China.

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