The best major market of the last 21 years is not what you think

Weighing up which single market an investor should have bought-and-held 21 years ago is admittedly a mostly theoretical exercise – but it throws up an illuminating, if unexpected, answer.



The Value Perspective team

Given a single choice of these four stockmarket indices, where would you rather have been solely and continuously invested for the last 21 years?

  • The US as a whole, through the broader S&P 500 index
  •  The US, but with more of a technology emphasis, by way of the Nasdaq
  • The entire emerging markets universe, via the main MSCI benchmark
  • Russia, courtesy of MSCI?

This is, of course, a largely theoretical exercise. Buying and holding a single investment for decades and taking what the journey throws at you, come rain or shine and regardless of what is happening in the wider world, is neither good investment practice nor something human beings find easy to do.

Still … which of the four investments did you pick?

If you chose Russia, you chose right – but the chances are you didn’t.

Go back 21 years to the autumn of 1998 and the country’s economy was in all sorts of trouble as a dependence on short-term borrowing to finance budget deficits, problems implementing tax reforms and a drop in the price of key exports – most obviously oil – were exacerbated by a decline in investor confidence following the Asian financial crisis the year before.

Russia’s own financial crisis hit in August 1998, leading to a precipitous drop in the value of the rouble, a debilitating outflow of foreign investment, delayed debt payments and the threat of a return to the hyperinflation the country had suffered after the collapse of the Soviet Union at the start of the decade.

All things considered, then, people were hardly queuing up to invest in Russia.

Russian market’s performance over the intervening years is fascinating – and on not one but two levels.

First is the sheer scale of outperformance – in US dollar terms – compared with those three other markets.

As the following chart shows, while the S&P 500 rose 336% on a total-return basis between September 1998 and June this year, the Nasdaq rose 484% and the MSCI Emerging Markets index rose 584%, the MSCI Russian benchmark rose 3,366%.

Respectively, those are average annual returns of 7.3%, 8.8%, 9.6% … and 18.4%.

Index returns Sep 1998 - June 2019


Source: Bloomberg, October 2019


If you find that fact barely credible, you are not alone – until we ran the numbers, we didn't believe it either.

We also checked what currency controls Russia had in place at the time and, as it happens, there were none.

If you had been brave enough to buy the market in autumn 1998 and then simply held on – as we say, a most improbable course of action in practice – you would have done brilliantly.

But here’s the other fascinating thing – if you had bought the market just 12 months earlier, it would have been a completely different story.

Re-crunch the numbers, as we do below, to start at 30 September 1997, not 1998, and while the MSCI Emerging Markets index rose 254% to June this year, the S&P 500 rose 375%  and the Nasdaq rose 489%, this time the MSCI Russian benchmark saw a total return of just 186%.

Index returns Sep 1997 - June 2019


Source: Bloomberg, October 2019


Here, then, the annual returns average out respectively at 5.9%, 7.4%, 8.4% … and a rather less eye-catching 4.9%.

So what accounts for the gap in the Russian market’s showing – of an average 13.5% a year or 3,180% in total-return terms?

Cyclically adjusted price/earnings ratio, known for short as the ‘CAPE’, encapsulates the average earnings generated by a market over the last 10 years, adjusted for inflation, which allows for a meaningful comparison of investment performance over time.

In 1997, as commodity prices boomed and investor sentiment towards Russia improved, so the market’s CAPE also headed upwards – almost trebling from 7.3x at the start of the year to 20.2x at the end of September.

Just 12 months later, the CAPE had plummeted to just 1.3x as, for all the reasons mentioned earlier, investors deserted the market.

Baron Rothschild is credited with the coining the brutally pragmatic investment wisdom “The time to buy is when there’s blood on the streets”.

Less jarring to 21st Century sensibilities, perhaps, would be Warren Buffett’s advice to “Be fearful when others are greedy and greedy when others are fearful”. 

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The Value Perspective team


The Value Perspective Team
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