Global stock market indices have only a 50% chance to regain their December 1999 highs by 2018, acco...
Global stock market indices have only a 50% chance to regain their December 1999 highs by 2018, according to research from the London Business School on behalf of ABN Amro.
In the short term, report authors Elroy Dimson, Paul Marsh and Mike Staunton believe the probability of another poor year in 2003 is essentially unaffected by the fact markets have already experienced three bad years in a row.
According to their analysis, there is a 38% probability there will be a negative real return on the UK market over the coming year.
Equity falls of 50% since December 1999 have created the third worst bear market on record. Although the current market downturn is the longest bear market since the Second World War, both the 1929-1932 Wall Street crash, during which US investors lost 80% in real terms, and the 1973-1974 bear market, in which UK equities fell 71%, were worse in terms of losses.
Looking at 2002, Germany was the worst performing market, with a fall of 40%, reflecting its weak economy and the exposure of the market to banking and insurance stocks. The report shows the US and UK markets moved with a high degree of correlation throughout the year, with the former ending the year down 21% and the latter 22%.
Entitled the Global Investment Returns Yearbook, the report examines total returns since 1900 for stocks, bonds, cash and foreign exchange in the UK and 15 other economies. These include the main North American, Asian, European and African markets that have existed over the period.
Despite the difficult opening years of this century, the 103 years of returns analysed show equity markets have rewarded investors over the long term, beating bonds in all 16 markets under consideration.
Bonds have outperformed equities in recent years, however, with fixed interest beating equities in all the analysed countries apart from Mexico. The return of long government bonds was positive in 22 of the 24 countries covered in the research, with only Mexico and Malaysia showing negative performance.
The best performing bond market was the US with a real return of 15.1%, followed by Switzerland with a return of 12.7%.
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