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:

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Past performance is not a reliable indicator of future results.

Other important information:

This video is directed at professional investors only as defined under the MiFID II Directive. Not for Public Distribution.

The material contained in this video is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this video does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this video when making any investment decisions.

Figures are hypothetical projections and actual results are likely to vary.

The opinions expressed in this video are those of individual speakers and may not be representative of Vanguard Asset Management, Limited

Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.

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