This year’s downturn in asset prices has improved Vanguard’s long-term outlook for global shares.
Jumana Saleheen, chief economist and Shaan Raithatha, senior economist at Vanguard, said UK shares are likely to return between 4.6 per cent and 6.6 per cent over the next decade.
Global shares (ex-UK, unhedged), will return between 6.1 per cent and 8.1 per cent, the pair added.
The predictions are part of Vanguard’s economic forecasts for 2023, which will be impacted by the actions of central banks.
Saleheen and Raithatha think central banks will ultimately be successful in bringing inflation back down, but at a cost.
“We expect a global recession in 2023. Financial markets have begun to price in our downbeat macro projections,” they said.
Central banks will continue to raise interest rates in the early part of next year, but the eventual peak and persistence of these rate rises will depend heavily on the actual path of inflation.
“[This] will determine how high bond yields rise. While rising interest rates have created near-term pain for investors, higher starting interest rates have raised our return expectations for fixed income.”
Vanguard expects domestic, GBP-denominated bonds to return between 4.7 per cent and 5.7 per cent annualised over the next decade.
The company expects global bonds to offer between 4.3 per cent and 5.3 per cent per annum over the next decade.
“Against such a challenging economic backdrop, it’s important for investors to to stay focused on their long-term goals.
“History repeatedly shows that sticking to the principles of good asset allocation across a globally diversified portfolio of shares and bonds remains a prudent approach.”
sally.hickey@ft.com
