Investment bank Credit Suisse reckons Australia’s exchanges have been the world’s best since 1900, delivering a real local currency return of 6.8 per cent return annually.

Ironically, Australia’s size as a share of global markets has actually gone backwards as a percentage of the world’s investable, free-float market capitalisation. It had 3.5 per cent market share in 1899 but only 2.2 per cent in 2020, while the US surged from 15 per cent to 54.5 per cent.

Yet overall, equities have been the best performing investment compared to bonds, bills and holding cash, and inflation.

An initial investment of $US1 in American equities back in 1900 would be worth $US58,191 ($88,653) today. Equities returned 9.6 per cent each year, while bonds returned 4.9 per cent, bills 3.7 per cent and inflation 2.9 per cent.

This is in spite of severe setbacks including World War One, the Great Depression, the 1970s oil shocks and the bear markets of the 21st century.

It also comes despite 80 per cent of firms listed in 1900 in the US alone today being far smaller, extinct or radically different.

For instance healthcare and telecommunications were virtually non-existant in those days while transport had shifted from shipping lines, trams and docks to airlines, buses and trucking.

Mining was one constant, with the bank noting quoted miners were just as important in 1900 as today.

 

Does being ethical cost in the end?

The report also alluded to the rise of environmental, social and corporate governance (ESG) issues. There is much debate about what ethical investing is and whether or not you can still reap financial returns.

But there is evidence to suggest being ethical could see you miss out.

For instance, Credit Suisse said $US1 invested in tobacco could’ve reaped $US8m by now, while £1 invested in alcohol on the UK market was now worth £491,648 — a return of 11.5 per cent.

The bank said the very (financial) reasons why it was argued to shun them actually helped them. For example, while it was argued downward pressure raised a company’s cost of capital, this could indicate an elevated expected return.

It also helped that many had elements of monopoly control and were defensive sectors.

However, Credit Suisse did admit that ESG-focused activist investing has been on the rise in recent years.

But success is not a given. They have a better chance when lead investors are domestic and able to collaborate with other investors.

Two other influential factors are the size of the activists’ stake and the performance of the company. The greater the former and poorer the latter the more chance they had.

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