February 2017
Research Institute
Thought leadership from Credit Suisse Research
and the world’s foremost experts
Credit Suisse Global
Investment Returns
Yearbook 2017
Summary Edition – Dimson, Marsh, Staunton
February 2017
Credit Suisse Global Investment Returns Yearbook 2017 – Summary Edition 2
Contents
For more information, contact:
Richard Kersley, Head Global Thematic Research, Credit Suisse Investment Banking,
richard.kersley@credit-suisse, or
Michael O'Sullivan, Chief Investment Officer, International Wealth Management, Credit Suisse,
michael.o'sullivan@credit-suisse
THE CREDIT SUISSE GLOBAL INVESTMENT RETURNS YEARBOOK 2017
SUMMARY EDITION
Elroy Dimson, Paul Marsh, Mike Staunton
emails: edimson@london, pmarsh@london, and mstaunton@london
3 Preface
5 Chapter 1: The Yearbook Project
5 Yearbook coverage
7 The Great Transformation
8 Why a long-term perspective is needed
11 Long-run equity returns and bond returns
15 Inflation, bills and bonds over the long run
19 Factor investing – highlights
23 Chapter 2: Individual markets
24 Australia
25 Austria
26 Belgium
27 Canada
28 China
29 Denmark
30 Finland
31 France
32 Germany
33 Ireland
34 Italy
35 Japan
36 Netherlands
37 New Zealand
38 Norway
39 Portugal
40 Russia
41 South Africa
42 Spain
43 Sweden
44 Switzerland
45 United Kingdom
46 United States
47 World
48 World ex-USA
49 Europe
50 References
57 Authors
58 Imprint/Disclaimer
February 2017
Credit Suisse Global Investment Returns Yearbook 2017 – Summary Edition 3
Preface
The 2017 Global Investment Returns Yearbook – Summary Edition
This publication is a summary version of the full Credit Suisse Global Investment Returns
Yearbook 2017, available in hardcopy only. Please contact your Credit Suisse representative for
further details.
Credit Suisse is proud to publish the 2017 edition of the Global Investment Returns Yearbook,
now incorporating the Global Investment Returns Sourcebook in a single publication. The
Yearbook is produced in conjunction with Elroy Dimson, Paul Marsh and Mike Staunton,
recognized as the leading authorities on the analysis of the long-run performance and trends of
stocks, bonds, Treasury bills (cash), inflation and currencies.
The core of the Credit Suisse Global Investment Returns Yearbook project provides an analysis
of investment returns stretching back 117 years, spanning all five asset categories in 23
countries across North America, Asia, Europe and Africa coupled with an overall global
aggregate. For those grappling with suitable parameters to judge relative valuation among the
respective asset classes and also for specific company valuation, long-run series of equity risk
premiums and real dividend growth provide valuable guidance.
Looking backward to look forward
Far from simply looking backward, we believe the long-term analysis in the Yearbook helps
provide a context in which to put nearer-term market movements and the economic environment
that influences them. Indeed, as we reflect on the here and now, and some momentous
economic and political events in 2016, the study offers invaluable perspectives for what have
felt to be extraordinary times. Twelve months ago, investors were scouring history for a guide as
to how to invest in times of deflation as interest rates on long-dated government bonds fell
toward, and in some countries, below zero. Now, the political backdrop has altered dramatically,
and so has the investment discussion.
Fears of the limits of monetary policy have become hopes for the opportunity afforded by fiscal
policy; fears of deflation have been replaced by discussion of resurgent inflation; and perhaps most
important of all, the debate is now not can bond yields spiral ever lower, but rather might this be the
beginning of the end for the most extraordinary bull run of the last 30 years, and mark a reversal of
the persistent underperformance of equities versus bonds we have seen this millennium
Perhaps one of the most significant charts of recent decades, underpinning the political
upheaval with which investors are now wrestling, has been that of the wage and corporate profit
share of US Gross Domestic Product (GDP). These two series tend to move almost perfectly
inversely with one another: when the corporate share of national income climbs, that of labor
declines. The recovery from the financial crisis saw the corporate share of GDP climb to a
record level of 12.6% of GDP in 2012, the highest share seen since 1950. This was driven by
a combination of borrowing costs falling sharply, commodity prices rebounding and high
unemployment and the forces of globalization reducing labor bargaining power significantly.
It is this final point, the decline in the labor share of national income in developed economies, which
has done the most to fuel populist political forces – and reversing this decline represents their goal.
Their policy prescriptions go against the conventional wisdom of recent decades: rolling back
globalization via protectionism, repatriating jobs, and boosting fiscal spending. The recent Credit
Suisse Research Institute report, “Getting over Globalization” from January 2017 provides valuable
insights on this topic. Understanding the impact of this policy mix on corporate profits, inflation and
growth in a US economy already apparently operating close to full capacity is a key challenge for
investors over the coming years. The Yearbook reminds us of course that the reinvestment of the
dividends companies distribute is, in the long term, the principal driver of total equity returns.
Should labor regain its pricing power with its associated pressure on corporate profitability,
February 2017
Credit Suisse Global Investment Returns Yearbook 2017 – Summary Edition 4
consequences for the dividend-paying capacity of companies will arise. It should be noted that the
long-term real growth in dividends in the US stock market has been 1.7%. In 2016, it was 5.5%.
A few potential conclusions do suggest themselves. First, the possible return of inflation as an
investment theme. As noted above, the US labor market already appears tight at a time when
labor force growth is slow (and a permanent tightening of migration laws could slow it further),
and wage growth is tentatively moving higher. Repatriating jobs into such an environment could
be a combustible mix for corporate profitability.
Second, populist politics create challenges for bonds. Not only is the inflation conversation
changing, but increased fiscal spending will need to be financed and monetary policy may prove
tighter than expected if nominal GDP growth quickens. With bond yields peaking in the mid-
1980s, a dataset of this historical breadth offers investors a reminder of the periods in which
bond prices used to go down as well as up. This is the regime our investment strategists at
Credit Suisse believe we are now heading toward.
Finally, as for equities, they arguably offer a degree of insulation from some of these challenges.
Their earnings and dividend streams have by their nature an inflation linking. Moreover, in a
historical context, the yield comparisons of equities relative to bonds are not stretched, at a time
when investors have seemingly spent the best part of a decade focusing on deflation or
disinflationary hedges. There is precedent for moves from disinflation to mild inflation providing a
favorable environment for equities that would justify a long overdue asset allocation switch in
favor of equities versus bonds. However, a full examination of inflationary periods in the
Yearbook provides a reminder that