Robeco publishes its expected returns 2023-2027 titled “The Age of Confusion”

“The right-wing bias in the distribution of inflation expectations for the industrialized countries will be a common thread in the period 2023-2027,” said Peter van der Welle.

Robeco publishes the twelfth edition of its Expected Returns (2023-2027) report, which provides an overview of what investors can expect over the next five years for the major asset classes, as well as macroeconomic forecasts.

In a context characterized by volatile and unpredictable markets, an energy and food crisis, double-digit inflation in developed markets and uncertainties over China’s trajectory as the biggest contributor to global growth, Robeco sees the next five years as an “age of confusion”. . Over the past year, the continuation of Covid-related budget support, supply problems and the war in Ukraine have all contributed to an unexpected rise in prices. Only the oldest investors have historically suffered the devastating effects of such increases on purchasing power and investment portfolios.

As such, we believe investment returns will remain below their historical averages over the next five years, mainly due to the low risk-free rate. It should be noted that for the first time in 12 editions of Expected Returns, the expected risk premium for equities (3%) will be lower than its historical average of 3.5%. The prospects for US dollar investors with an international portfolio are brighter as we expect other currencies to appreciate against the greenback and the dollar bull market to end within five years.

Source: Robeco. September 2022. The value of your investments may fluctuate and estimated performance is not a guarantee of future results.

Climate risk and its consequences have been an integral part of our expected return report since last year. We believe that climate change will have little or no impact on developed market government bonds and investment grade corporate bonds. This is a slightly negative signal for equities in developed markets due to the risk of weaker economic growth and physical risks. Commodities are the only asset class to benefit from a positive climate signal, largely as the energy transition and physical risks associated with climate change will increase pressure on commodity prices.

In addition to the five-year outlook, the Expected Returns Report addresses four specific topics related to this year’s theme:

  • The new compromise in world trade
  • The data alternative for a head start
  • The cost of switching to green energy
  • Price inflation: food for thought or not?

“We believe that the level at which inflation becomes sustainable is relatively high and that recessions (which we anticipate in one way or another) are very disinflationary. However, the right-skewing of the distribution of inflation expectations for developed economies will be a common thread over the period 2023-2027,” said Peter van der Welle, multi-asset strategist at Robeco.

“In this time of confusion, the future has become less predictable, particularly with regard to the consequences of climate risk. The exact extent of this over the coming decades is uncertain, and its impact on asset prices even more so. What we do know is that investors need to give serious consideration to the long-term impact of climate change on the performance of the asset class,” added Laurens Swinkels, researcher at Robeco.

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