WORLD STOCK MARKET RETURNS 1900-1995
STOCK MARKET PERFORMANCE BY DECADE
globalfindata.com
Bryan Taylor
Despite the dismal record of the 1930s, there were places where investors could have profited. The most significant returns came from South African gold shares which increased in value by 266% between 1930 and 1940. Shares in other countries in which commodities played an important role in their economies, also saw increases in their stock market indices, among them Australia (2%), India (11%), New Zealand (37%), Norway (25%), South Africa (13%) and Venezuela (76%).
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Bond and commodity markets showed similar fluctuations in price volatility. Deflation lowered the nominal yields on bonds while increasing the real returns. Real returns increased because of fears of governments defaulting on their bonds, for economic reasons in the early 1930s and for political reasons in the late 1930s. Bond prices collapsed in a matter of days when economic crises struck countries or war began. Commodity prices collapsed in the early 1930s, then began rising as governments supported commodity prices to reduce the impact of deflation on farmers and other constituents. One successful investment strategy would have been to invest in those countries which relied upon commodities for a significant portion of their national production. All of these countries did well during the 1930s, relatively speaking. They were among the few to show positive returns to shareholders.
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The 1970s, along with the 1940s and 1910s, saw inflation reduce real returns to investors. Although stock markets increased in price in nominal terms, in real terms they declined in value. Investors in commodity markets were about the only ones who could make significant returns, assuming they could stand the volatility inherent in those markets. The 1970s contained one of the twentieth century’s three killer-bear markets (in 1920-1921, 1929-1932 and 1973-1974). Some markets, such as the United Kingdom, fell more in value during the 1973-1974 bear market than they had fallen during the 1929-1932 bear market. Although stocks recovered after 1974, few stock markets were able to keep up with the rising inflation for long. Successful investors put their money in Asia and South African gold stocks. Japan returned 178%, Hong Kong returned 465%, South Korea returned 624%, Taiwan returned 397%, and South African Gold stocks returned 595%. Almost any other market provided nominal returns which were less than the consumer price inflation rate. During the 1970s, the Morgan Stanley World Index rose by 30.8%, the EAFE index by 75.7%, and the Standard and Poor’s 500 rose by 17.3%, but consumer prices more than doubled in the United States.
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Commodity markets, of course, came alive in the 1970s. After a brief flourish in the Department of Labor/CRB Commodity Index following the outbreak of the Korean War, the index remained virtually unchanged for the next 20 years, finally breaking out in 1972, pausing in the middle of the decade, then moving up again starting in 1977. The CRB index had tripled by the end of the decade. Whereas economist and financial analysts saw the inflation of 1972-1974 as an anomaly in which commodity prices rose while stock and bond prices fell, the 1977-1979 inflation proved the endemic nature of the inflationary problem. In 1979 Paul Volcker was elected to the Fed. He eventually brought an end to the 35 year bear market in bonds by defeating the inflationary beast. Just as the determination of international governments in the late 1940s to end 35 years of international economic chaos laid the foundations for the stock market rise of the 1950s, the determination of Central Banks to defeat which had built up in the world’s economies for 35 years laid the foundations for the financial bull market which followed.
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The 1980s: The Century’s Best Decade for Financial Assets
The 1980s represented the best of times and the best of times. As any contrarian knows, when the market looks its least attractive, that is the time to invest. With inflation rampant, a second oil crisis beginning, interest rates at unprecedented peacetime levels, and stock market values at their lowest levels in real terms since the 1930s there was only one choice. Put everything you had into the stock market!
[seems to me that today you could substitute commodities in the 80's example above. commodities are hopelessly out of fashion, no one is ever concerned about inflation anymore, interest rates are quite low and world bankers are easing credit vs the extreme highs in rates in 1981 and tightening by bankers, and commodities are at the lowest levels in real terms since the 1930's or even earlier.] |
