Equities are the go-to asset class as far as ultra-long-term returns are concerned. A report by Business Standard stated that over the past 123 years, global equities have provided an annualised real return of 5 percent in US dollar terms, while bonds have delivered 1.7 percent and short-term bills just 0.4 percent. The BS report quoted Credit Suisse’s Global Investment Returns Yearbook 2023.
“Equities have outperformed bonds, bills, and inflation in all 35 markets. Since 1900, world equities outperformed bills by 4.6 percent per year and bonds by 3.3 percent per year,” Credit Suisse said in a release.
Interestingly, since 1900, Australia has been the best-performing stock market in real US dollar terms, with an annualised real return of 6.43 percent, just behind the US, at 6.38 percent, noted BS, quoting the report.
Between 1953 and 2022, Indian equities delivered inflation-adjusted annualised returns of 6.6 percent, while bonds 0.3 percent, stated the report. It further pointed out that the annualised equity and bond returns have improved over the past two decades, to 10.4 percent and 1.3 percent, respectively. Between 1973 and 2022, they were 7.4 percent for equities and 1.3 percent for bonds, reveals the study.
“By the end of 2022, average inflation across the yearbook countries was 8 percent, 19x higher than at the end of 2020,” stated Credit Suisse, adding that whenever inflation shoots past 8 percent, it takes multiple years for it to revert to the mean.
The study also shows that over the past 123 years, inflation has negatively impacted both bonds and equities, said BS. Hence, “equities do not provide a hedge against inflation, notwithstanding claims to the contrary”, it highlighted.
It goes on to say that stocks and bonds are a good hedge for each other as they are mostly negatively correlated. However, the last calendar this correlation was broken, the report revealed.
“The hedge failed in 2022 as equities and bonds both fell due to inflation, sharp increases in real interest rates, and rate-hiking cycles. Bonds had their worst year ever in the US, the UK, Switzerland, and across developed markets,” observed Credit Suisse.
The yearbook also highlighted that historically, the returns on stocks and bonds have been much lower during hiking cycles than during easing cycles, stated BS.
