Investors should expect lower economic growth and periodic bouts of volatility in the near term, Vanguard has warned.
In its 2020 outlook published this morning, the US-based giant says that political risk and high asset prices are just some of the “persistent threats to growth”, which it forecasts at just 1.2 per cent for the UK and 1 per cent for the US next year.
The calculation of 1.2 per cent growth in the UK assumes an orderly Brexit deal will be secured, but that figure could drag to 1 per cent.
The manager also predicts “modest” asset returns. For the UK equity market, the annualised return over the next 10 years is expected to be in the 4 -6 per cent range, slightly improved from the outlook last year.
The fixed income outlook, however, has “deteriorated further because of central bank policy, lower yields across maturities, and higher corporate bond valuations”.
Vanguard chief European economist and head of investment strategy Peter Westaway says: “Subdued returns are here to stay for the next decade. Our near-term outlook for global equity markets remains guarded, and the chance of a downturn for stocks and other higher-risk assets remains elevated and significantly higher than that in a ‘normal’ market environment.
“Continued contraction of world trade relative to GDP and ongoing uncertainty are undermining growth…It restricts investment and hampers the spread of technologies and ideas which stimulate productivity. As such, we see growth staying subdued well into 2020.”
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