As developed market interest rates stall or fall and the inflation-adjusted returns
on most sovereign debt drops to negative territory once again -- the global search for yield by institutional investors is as urgent as it has ever been.
However, on a long-term basis these tend to deliver low or negative inflation-adjusted returns
. While it is important to have bank deposits, the overall proportion has to be balanced out between other investment options.
The top line represents the absolute rupee-denominated 10-year returns, the middle one the dollar-denominated 10-year returns, and the bottom one the rupee-denominated inflation-adjusted returns
. The fact that the line has not veered into negative territory since 2004 suggests that stocks, in the long run, are a profitable enterprise, or at least not a money-losing one.
Between 1815 and 1973, average inflation-adjusted returns
were 6.4 percent and haircuts averaged 1.3 percent.
But this doesnaACAOt mean that you should totally turn a blind eye to equities because they have the potential to yield inflation-adjusted returns
in the long run.
Real return: The inflation-adjusted returns
of an investment.
The first of these concerned the UK equity markets and returns to shareholders: the annual inflation-adjusted returns
on British pension funds in 2000-09 averaged only 1.1 per cent when the financial sector was taking for itself some 40 per cent of all corporate profits-while bankers were paying themselves huge bonuses.
Using these inflation-adjusted returns
, we find that there is still substantial evidence of excess return predictability in liquidity-adjusted inflation-indexed bond returns as well as in breakeven inflation returns in both the US and the UK, which we interpret as evidence of a time-varying real interest risk premium and a time-varying inflation risk premium.
Tushar Pradhan, chief investment officer, HSBC Global Asset Management, says the rising dollar pushed up US 10-year Treasury yield from 2.1% to 2.5% within a month, offering better inflation-adjusted returns
than most emerging markets.
He said going back to 1960, the first 7 months of the third year of a presidential cycle (like 2011) produced inflation-adjusted returns
of 20 percent for the 48-month presidential cycles.<span style="mso-spacerun: yes;"> </span>Meanwhile, the remaining 41 months of the cycle returned only 1 percent.
In contrast to most studies, which employ statistical techniques to test the correlation between inflation and stock returns, this study uses two investment strategies--lump-sum and annuity--to investigate actual inflation-adjusted returns
among the ten African stock markets.
Real, inflation-adjusted returns
over the period are fairly high in China--between 5 percent and 10 percent--and quite low in Japan--ranging from zero to about 3 percent.