Global market outlook: No pain, no gain
11 December 2018 | Markets and Economy
Slowing growth and monetary policy normalisation have spurred bouts of volatility. Will they trigger a bear market? In this short video, we talk about our expectations for investment returns across a range of asset classes. Alexis Gray, senior economist, Vanguard Europe
Leo Schulz (moderator): As the European Central Bank phases out quantitative easing, what should we expect from Euro area investment returns? My name is Leo Schulz, and I have with me Alexis Gray, senior economist at Vanguard Europe.
Alexis, should we be getting ready for a bear market?
Alexis Gray (senior economist, Vanguard Europe): Well, we certainly aren’t predicting a bear market, not least because we don’t predict a global recession. But there are a few headwinds to the market, one of which is slowing growth, also we have rising interest rates, so the risk of a bear market is elevated but is certainly not our base case.
Leo Schulz: Bond returns, Alexis, what is your view there?
Alexis Gray: Well, in the fixed income markets with interest rates so low, we don’t expect returns to be outstanding; in fact, we would describe them as being relatively muted. For an investor in the Eurozone, we expect returns of roughly 0-2%, both domestically and globally, which is obviously lower than the historical precedent.
Leo Schulz: Indeed, quite muted.
What about in the equity market, Alexis?
Alexis Gray: In the equity market, it is a similar story. We have a somewhat guarded outlook for some of the reasons that I mentioned earlier. We have also seen valuations become slightly more stretched on a global basis, so for Eurozone equities, our outlook is for roughly 2-5% returns on average over the next decade and for global equities around 1-4%.
Leo Schulz: And are these nominal returns or real returns, Alexis?
Alexis Gray: So these are nominal.
Leo Schulz: What would you see as the main risks to client portfolios?
Alexis Gray: Well, looking at an average portfolio with a mix of equities and bonds, equities tend to be more volatile, so if there is a correction or a bear market, then the risk comes more on the equity side. Fixed income tends to be much more stable, so the risk of a severe loss is much lower.
Leo Schulz: Alexis, thank you.
As we have emphasised in previous economic and market outlooks, the benefit of a globally diversified portfolio with an appropriate balance between equities and fixed income is as important in today’s market as ever.
Thank you for watching.
Investment risk information:
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