World’s second-biggest money manager says non-US markets to give more returns
Vanguard, the world’s second-biggest money manager, believes non-US equity markets may outperform the US market over the next 10 years with a slightly higher risk premium. A research done by the fund manager showed non-US equity markets may deliver 6–8 per cent CAGR returns over the next 10 years, which would be modestly higher than that of US equity. It said India, the UK, Japan and European nations are in the middle stage of economic expansion, while US, Australia, China and Canada are in the late stage of expansion. The equity risk premium for non-US equity markets, however, may be slightly higher going forward, as valuation contraction may not be as drastic as that experienced over the last three decades. The equity risk premium for non-US equity markets, however, may be slightly higher going forward, as valuation contraction may not be as drastic as that experienced over the last three decades. It said returns in global equity markets are likely to be about 4.5 – 6.5 per cent for US dollar-based investors with a median volatility of 15.80 per cent. “This remains significantly lower than the experience of the previous decades and of the post-crisis years, when global equities have risen 12.6 per cent a year since the trough of the market downturn. We do, however, foresee improving return prospects in non-US developed markets, building on slightly more attractive valuations (a key driver of the equity risk premiums) combined with higher expected risk-free rates,” Vanguard said. It has projected 16.30 per cent median volatility for US equities compared with 18.20 per cent for global equities, excluding the US market. “Expected returns on US stock market are lower than those for international markets, underscoring the benefits of global equity strategies in this environment,” the Vanguard report said.
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