The market is too optimistic for investors to find long-term returns?

category:Finance
 The market is too optimistic for investors to find long-term returns?


According to the financial times, thanks to the positive support measures taken by the central bank and the government earlier this year, as well as the current research and development progress of the new crown vaccine, a large part of the expectations for future market performance in both the US stock market and the corporate bond market have been fulfilled ahead of schedule.

According to the ice bank of America index, the average yield on us junk bonds recently fell below 4.8%, a record low for the lowest rated corporate credit bonds. In the stock market, US small cap stocks and industrial stocks (a barometer of future economic expectations) both broke through the historical peaks set in 2018 and earlier this year respectively last week.

Compared with past cycles, the market has rebounded at an amazing rate this year. Nicholas colas of datatrek says it usually takes four to five years for US stock markets to push small cap and industrial stocks to new highs after a recession.

High starting point limits profit space

However, the ultra-low bond yields and high stock valuations left by the outbreak have made it more difficult to improve the long-term return of the portfolio. Given the current high performance of many publicly traded assets, returns over the next decade look less than satisfactory.

David Kelly, chief global strategist at Morgan asset management, said an average 60 / 40 portfolio of global stocks and US bonds is now expected to return only 4.2% annually over the next 10 to 15 years, compared with 5.4% a year ago. Since 1980, the compound annual growth rate of returns on such portfolios in the United States has been 10.2%.

DWS, an asset management firm, estimates that the annual nominal return of MSCIs world wide country index will be 5% in the next decade, only about half of that in the past decade.

For investors who are unwilling or unable to expand their exposure to alternative assets, long-term ultra-low bond yields mean holding more stocks.

Potential of healthcare sector

So, which companies and industries will be able to expand in the next decade?

The recommendations of UBS wealth management are focused on financial technology and green technology. The global promotion of 5G technology has promoted the development of robotics, self driving cars, artificial intelligence, data analysis and network security.

UBS is also bullish on healthcare. The bank predicts that the global population over 65 will increase by 60% to 1 billion by 2030. This will require more spending on health care and related technologies.

Among the 20 major groups in the Stoxx 600 index, healthcare led with a share of 15.6%. In the United States, the sector accounts for nearly one-fifth of the Russell 2000 small cap index, ranking first; its weight in the S & P 500 index has remained at about 14% in recent years.

If the medical sector expands further on this basis, it may help the stock market to outperform current expectations of low future returns.

Dhaval Joshi, chief strategist at BCAR research, said: unlike technology, the rise in healthcare is driven by profits, not by valuations. The health care industrys long-standing valuation stars look attractive. In terms of Chinas market, CITIC Securities released a report earlier this month, pointing out that innovation and policy changes have led to a significant increase in the pharmaceutical sector in recent years. Among them, the layout of priority track is becoming more and more important. Under the overvalued value, pharmaceutical investment is more focused on long-distance running. CITIC Securities believes that some pharmaceutical sectors will continue to show structural opportunities next year. On the one hand, leading companies in many directions, such as innovative medicine, biological medicine, medical devices, CXO, ICL, retail and medical beauty, which are generally optimistic in the market, are continuing to enjoy the policy dividend, and their advantages will be more prominent; on the other hand, traditional Chinese medicine with resource endowment and Internet medicine are also in the Internet medicine At present, the value of some enterprises in the wave of treatment is still underestimated, and the fundamentals are expected to improve gradually in the future. Source: Wind Information Editor: Yang Qian_ NF4425

Dhaval Joshi, chief strategist at BCAR research, said: unlike technology, the rise in healthcare is driven by profits, not by valuations. The health care industrys long-standing valuation stars look attractive.

In terms of Chinas market, CITIC Securities released a report earlier this month, pointing out that innovation and policy changes have led to a significant increase in the pharmaceutical sector in recent years. Among them, the layout of priority track is becoming more and more important. Under the overvalued value, pharmaceutical investment is more focused on long-distance running. CITIC Securities believes that some pharmaceutical sectors will continue to show structural opportunities next year. On the one hand, leading companies in many directions, such as innovative medicine, biological medicine, medical devices, CXO, ICL, retail and medical beauty, which are generally optimistic in the market, are continuing to enjoy the policy dividend, and their advantages will be more prominent; on the other hand, traditional Chinese medicine with resource endowment and Internet medicine are also in the Internet medicine At present, the value of some enterprises in the wave of treatment is still underestimated, and the fundamentals are expected to improve gradually in the future.