It was a decade that began with such promise. Stock markets in Europe and America ended the 1990s at record levels, and even bedraggled Japan was at a two-year high.
Instead, it became a decade that richly earned the name “the zeros”. For the entire developed world, that was just about the decade’s total return.
The US stock market lagged even that modest return. According to the MSCI indexes, which measure virtually all stock markets using consistent criteria, an investor in the American market who reinvested all dividends— and who somehow avoided all taxes and transaction costs for the decade—would have ended 2009 with 12% fewer dollars than when the decade began. That is an annual return of -1.3%.
But it was a different story for emerging markets, which actually did emerge. When the decade began, China had the 43rd largest stock market in the world, trailing such countries as the Philippines, Peru and Poland. At the end of the decade, its market capitalization ranked ninth in the world.
An investor in Chinese stocks over the decade would have earned more than 150%, or a compounded 9.7%.
As a group, emerging markets gained around 160%, or 10.1% a year. Brazil’s market grew at least 500%, or 20% a year. India climbed at an annual rate of 14.1%, for a total gain of at least 270%.
Just as few predicted the sad performance of most developed countries, so, too, did few foresee the gains for emerging markets. In 1999, memories were fresh of the Asian currency crisis and Russian default, which scared some investors away.
As it happened, the lessons of the Asian currency crisis served many emerging countries well, by encouraging them to amass large reserves of foreign currency, principally dollars. To do that, they sought to keep their currencies undervalued to encourage exports, and as a group they succeeded.
In the US, and to some extent Europe, the end of the technology bubble brought on a recession, which was worsened by the reaction to the shock of 11 September 2001. The US Federal Reserve responded by driving interest rates to historic lows and keeping them there longer than now appears to have been wise. Low interest rates stimulated demand and caused Americans to buy more things, many of them imported. At the same time, the low rates, combined with a lowering of credit standards by mortgage issuers, caused home prices to soar, providing more consumer spending power as homeowners refinanced their loans and extracted equity.
The MSCI world indexes have a relatively short history, but the similar Standard & Poor’s 500-stock index in the US dates back to 1928. The decade of the zeroes was the first decade ever that the S&P 500 had a negative total return. Prices fell in the 1930s, but dividends moved the index narrowly into positive territory.
Bring on the teens. Please.
©2010/ THE NEW YORK TIMES