Growth and Deleveraging

Winter 2013

Earning the Rewards of the Stock Market

Judging by the headlines in the financial press, retail investors spent much of the past year anxiously awaiting one calamity after another that failed to occur.

The plunge off the so-called fiscal cliff was averted. The euro zone did not fall apart. China’s economy and stock market did not crash. The bond market did not implode. The re-election of President Obama did not derail the U.S. market. Doomsday did not arrive on December 21, as some interpreters of the Mayan calendar suggested it would.

The belief that owning a share of the world’s businesses is a sensible idea appears to be alive and well, despite suggestions from some observers that investing in equities is old-fashioned. For 2012, total return was 16% for both the S&P 500 Index and the MSCI World Index in local currency. Among 45 global stock markets tracked by MSCI, only three posted negative results in local currency (Chile, Israel, and Morocco), while twelve markets had total returns in excess of 25%, with Turkey leading the pack at 56%.

Although much of the financial news over the past year highlighted Europe’s fragile financial health, most of the region’s equity markets outperformed the U.S., including Austria, Belgium, Denmark, France, Germany, the Netherlands, Sweden, and Switzerland. For U.S. dollar-based investors, results were further enhanced by a modest decline in the U.S. dollar relative to the euro, the Danish krone, and the Swiss franc.

As is so often the case, earning the rewards offered by the world’s capital markets may have required a combination of discipline and detachment that eluded many investors.