Henrik Drusebjerg also points out that periods of very high returns are often followed by periods of more subdued returns.
“The technical term is a mean reversion, which describes how equities have a tendency to revert back to their long-term average return. You could also say equities possess a certain elasticity, and over the past decade that elastic has been well and truly stretched, with returns markedly above the historical average,” he says.
Financial experiment could backfire
Henrik Drusebjerg characterises the central banks’ historically accommodative monetary policies since the financial crisis as the world’s largest financial experiment, and it could come at a cost:
“Central bank monetary policy has been a tailwind for the past decade, but there could be negative consequences in the slightly longer term. Central banks, for example, now have far fewer resources at their disposal to address future crises, and there are almost certainly other consequences we simply have not yet reckoned on. This is clearly an uncertainty factor for the next ten years,” he says.
Emerging markets gaining ground
Return expectations from the Rådet for Pensionsprognoser are 5.5% annually for equities in the devloped markets in the coming decade and 9.5% annually for equities from emerging markets.
“At Danske Bank we agree that return potential is greatest in emerging markets, even though forecasting 10 years ahead is generally close to an impossible task. Past decades have seen emerging markets account for an ever expanding share of the global economy, and we expect this trend will remain intact in the coming decade. However, investors should be aware that risk is also higher in emerging market equities,” he says.
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