Returns for fixed income and equities are expected to remain low over the long term, with inflation subdued and GDP growth in many countries still below trend, a senior economist has claimed.
A Hong-Kong based senior economist from Vanguard, Qian Wang, said that a lot of countries are below trend because of low growth, which causes deflationary pressure.
“That gives you a lower interest rate and, if your cash rate is low, it means all the returns for the risky assets will be lower,” said Ms Wang.
“The global economy is in a frustratingly fragile mode, because we are converging to a lower growth equilibrium.”
For the global fixed income market, Ms Wang said Vanguard predicts a return between two to three per cent.
“We want to remind you that there are a lot of possibilities and there is still risk, but the most likely scenario is the return for a global fixed income portfolio for the next few years will be two to three per cent, [so] lower than the historical average,” she said.
For the equity market, returns are expected to be around six to nine per cent, she added.
“So this seems to be our changing world, everything seems to be lower. But what is not changing is that higher returns always come with higher risk,” she said.
“The ultimate question for the investor in this environment is; in order to achieve a decent return target, similar to what you got before, are you willing to take on more risk?”