In focus

Hong Kong savers predict double-digit investment returns: is that a danger sign?

Hong Kong savers today are more optimistic than at any point in the past five years, expecting their future investment returns to average more than 11% per year. They are more likely to invest further, and to check up on their investments more frequently – but most striking of all they expect higher future returns.

The findings are part of the Schroders Global Investor Study 2021, the bellwether annual survey which highlights trends based on the answers and opinions of more than 23,000 savers around the world, including 500 of them from Hong Kong.

This latest forecast – showing what Hong Kong savers reckon they will get each year between now and 2026 – represents the most upbeat view since 2016, when the survey began.

Investors’ optimism set against rollercoaster background

All the more surprising is that this optimism comes at a time of extreme uncertainty, as global economies continue to recover from the seismic shock of the pandemic. Previous studies in this series have shown annual return expectations creep up by over a quarter in four years, from 9% in 2017 to this year’s 11.4%, as shown in the chart below. This is despite the fact that actual investment values have followed a much rockier path.

20210805_hk_eng_pr_1.jpg

Real-life stock market returns during this period proved highly volatile, ranging from 28% growth in 2019 to a drop of 8% in 20181.

Last year encapsulated this volatility in an even shorter timeframe: spooked by the spread of Covid-19, global share prices fell 34%, but regained – and then exceeded – their previous level all within nine months2.

Professional forecasts are far more modest

Forecasts by Schroders’ in-house economists, who regularly revise their annual investment return predictions, are much lower than investors’.

In January 2021, Schroders’ economists took climate change into consideration and forecasted Hong Kong’s annual long-term stock market return at 7.2%3.

This is 4.2% less than the hoped-for returns of Hong Kong investors whose responses make up the Global Investor Study. And the economists’ predictions relate only to shares, which typically return considerably more than other components of a saver’s portfolio such as bonds and cash.

Similarly, while the surveyed investors’ expectations of returns have been rising year after year, Schroders’ economists’ predictions for returns in most developed markets have fallen over the past 12 months.

What could account for the divergence in these views?

Stuart Podmore, behavioural investment insights specialist at Schroders, suggests one explanation lies in investors’ emotional response to recent events and market movements. He reckons the pandemic’s upheaval has created anxiety, resulting in a less long-term mindset among investors, which is manifest in our need to monitor holdings’ performance more frequently.

“The pandemic, the lockdowns and all the associated disruptions might also have affected investors’ ability to process risk,” he says – with the potential result that “expectations of future returns become less realistic”.

The “expert” effect: have strong overall returns boosted investors’ confidence?

One fascinating aspect of this year’s study is that those investors who categorise themselves as “expert” or “advanced” in financial knowledge also have the highest expectations of future returns. As much as 24% of “expert” investors expected their annual total return to exceed 25% p.a. over the next five years. Investors with “advanced” financial knowledge also had ambitious goals, with 17% of them expecting returns of 20% or above each year.

Interestingly, the proportion of investors classifying themselves as having “expert/advanced” knowledge has also grown over recent years. Looking back to earlier versions of the study shows that in 2019, just 29% purported themselves as “expert/advanced” investors. By 2021, the proportion had grown to 34%.

“Markets have been volatile in recent years, but overall returns have been unusually strong. Because the outcome has been good, in that investors’ portfolios have risen in value, you start to feel that it’s your judgment calls which have worked out so well. This in turn encourages people to feel more confident both about their own knowledge and to believe they will outperform others in the future.” said Stuart.

“A positive trend arising from the pandemic and its uncertainty is a stronger interest by investors in the state of their finances,” Stuart said. “But the past 18 months have taught us that the future is difficult to predict. A measured approach to investing based on long-term objectives is likely to stand investors in better stead.

“We need to be cautious over investment return expectations. The outlook shared by many investors – in particular those who see themselves as experts – is exceptionally optimistic.”

For more on the Schroders Global Investor Study 2020, please visit www.schroders.com/en/hk/retirement/resources/gis/.


1 Source: MSCI World
2 Source: Refinitiv, Schroders
3 Source: Schroders 30-year return forecasts: 2021-2050

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