Investors hope for double-digit returns despite economic fallout

Hong Kong investors are predicting annual returns of 10.3% from their stock market investments.

Hong Kong investors continue to hope for double-digit yearly total returns from their investment portfolios despite the downturn inflicted on the global economy by the COVID-19 pandemic, according to Schroders’ latest Global Investor Study.

The study found that Hong Kong investors are predicting annual returns of 10.3% from their stock market investments.

Strong stock market performance in recent years appears to be behind investors’ continued optimism, noted Schroders.

This marks the third year in which investors’ forecasts of future stock market returns have increased. As a result, expectations for future returns are, on average, slightly higher in 2020 than in 2019, said Richard Dyson, head of content, Schroders.

“But it was also an extraordinary year, as investors were making their predictions in a period of extreme uncertainty COVID-19 brought an end to the longest period of global economic expansion in history, and ushered in its place the sharpest downturn since the depression of the 1930s,” he added.

The market turbulence in early 2020 appears not to have dented Hong Kong savers’ optimism. Schroders conducted the survey online amongst 500 Hong Kong investors between 30 April and 15 June—a time when most Asian markets have imposed lockdowns and travel restrictions, and just after the period between mid-February and mid-March when world stock markets fell by over 30%.

Although a recovery rally in world stock markets had begun by April—by which time some countries were re-opening aspects of business and society—markets remained considerably lower than at the start of the year, added Schroders.

The year 2019 was good for world stock markets in general, and that could in part explain Hong Kong investors’ overall increase in optimism in this year’s survey, noted Dyson.

But according to previous research, there is no clear link between past market performance and hoped-for future returns.

The year 2018, for example, was broadly disappointing in world markets. But Schroders’ previous May 2019 poll saw investors from across 32 markets worldwide predict up to 15.8% of returns. In the end, only three locations where respondents’ hoped-for future returns had been exceeded by the actual returns generated in the previous 12 months.

“The conclusion was that investors’ hopes were unrealistic and potentially misplaced, and that “overall return expectations for the next five years exceed stock market returns achieved in nearly all countries over the past five years,” Dyson wrote in his report.

Another reason that may be driving up investors’ forecasts are interest rates and inflation in regional economies. In both the 2019 and 2020 surveys, investors anticipating the highest returns tended to live in economies experiencing higher inflation and interest rates.

These factors generally lead to higher nominal returns on cash and other savings.

“It’s extremely interesting that despite the impact of COVID-19—and all of its dramatic effects on our lives and work—investors still have confidence in generating returns from their savings,” said Rupert Rucker, Head of Income, Schroders. “You might say that some of these expectations are unrealistic, but you could also say that perhaps investors are realising that stock market returns are not the same as economic growth.”

Overall, Schroders expects lower long-term interest rates in the future.

“Longer-term we think there will be more disruptive forces at play in markets and that it will become harder overall to find returns. But we have seen again and again in the years since the financial crisis that certain investments can deliver returns even in challenging environments,” Rucker said.