Asset manager Robeco has published its expected returns for the next five years, which will see slower expansion as central banks reduce stimulus for the economy.
Between 2019 and 2023 the asset manager expects emerging market equities to beat developed market equities with a 4.5% yearly return compared to 4%.
Emerging market debt in local currencies is expected to return 3.75% a year, while investment grade corporate bonds should deliver 1% and high yield non-investment grade bonds should return 1.5%.
Robeco’s investment solutions department says valuations for every major asset class are “looking stretched” and that a transition to the next market phase could easily send markets into a “tailspin”.
But the firm also said: “There is certainly no reason to panic right now, according to the team, as the global economy is currently still in relatively good shape, and growth remains solid. The US is still going strong, and the Federal Reserve’s tighter policy has not put a spanner in the works.
“Meanwhile, China has done well to manage down unsustainable debt-fueled growth to more sensible levels and the Eurozone has continued to grow, while emerging economies are expected to outperform developed economies.”
Bart Oldenkamp, head of investment solution, said: “It is clear that the investment environment could change dramatically in the next five years and that current conditions are already quite challenging with compressed spreads, widespread overvaluation in the major asset classes and low volatility. For long-term investors, it makes sense to start anticipating these changes.”
However, he added: “Opting for a more defensive portfolio is often the default solution, but in the current economic climate there are risks associated with doing too much, too soon. Therefore investors should not forget that patience is a virtue in the world of investing too, as we believe that there are still opportunities to harvest risk premiums in the major asset classes.”
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