From rail road dominance in early 1900s, finance now holds the lead.
Since the 2008 financial crisis, there has been a resurgence of interest in economic and financial history among investment professionals. Today, we reflect on this past for investors today. We’ll look at the past 119 years through the eyes of the Credit Suisse Global Investment Returns 2019 report.
From stocks, bonds and currencies, the report covers 26 markets – representing over 90 percent of the investable universe – and looks at really long-term, return data. Here are some interesting highlights from the past.
Did you know that at the start of the century, the UK equity market was the largest in the world, accounting for a quarter of world capitalisation, and dominating even the US market (15 per cent), Germany (13 percent) ranked in the third place, followed by France, Russia and Austria-Hungary.
119 years later, the US market now dominates its closest rival and today accounts for over 53 percent of total world equity market value. Japan (8.4 percent) is in the second place, ahead of the UK (5.5 percent) in third place.
Even more stunning is the dramatic shift in industry concentration over this time period. Markets at the start of the 20th century were dominated by railroads, which accounted for 63 percent of the US stock market value and almost 50 percent of UK value.
Over a century later, railroads have declined almost to the point of stock market extinction, representing under one percent of the US market and close to zero in the UK. Interestingly, although railroads were the ultimate declining industry in the USA in the period since 1900, railroad stocks beat the US market. In fact, railroad stocks outperformed both trucking and airlines since these industries emerged in the 1920s and 1930s.
Another interesting set of facts are the similarities between 1900 and 2019. For instance, the banking and insurance sectors continue to be important. Industries such as food, beverages (including alcohol), tobacco and utilities were present in 1900 and still survive today.
And, in the UK, quoted mining companies were important in 1900 just as they are in London today. Nonetheless, of the US firms listed in 1900, over 80 percent of their value was in industries that are today small or extinct; the UK figure is 65 percent. Other industries that have declined precipitously include textiles, iron, coal and steel. Conversely, a high proportion of today’s companies come from industries that were small or non-existent in 1900; 62 percent by value for the USA and 47 percent for the UK.
An odd fact is the “emerging markets” outperformance delusion. Since 1900, emerging markets (EMs) have underperformed developed markets (DMs). But this underperformance dates back to the 1940s. Since 1950, EMs have beaten DMs by just over one percent per year. They have underperformed DMs over the last decade, but solely due to the exceptional performance of the USA.
In all, the value of the report isn’t that is some sort of roadmap for future returns. Instead it gives us a better sense for where we have been. And over the past many years a lot has happened, including two world wars, several recessions and financial crises, that have upended and reshuffled the global economy and financial markets.
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Note: The results are not exact but very close to the actual.
