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Hong Kong investors expect unrealistic returns

Schroders’ latest global investor study shows that despite the turmoil caused by the pandemic, Hong Kong investors expect outsized stock market returns.

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, the investment manager’s study showed.

“The pandemic, the lockdowns and all the associated disruptions might have affected investors’ ability to process risk, with the potential result that expectations of future returns become less realistic,” Stuart Podmore, behavioural investment insights specialist at Schroders, said in a statement.

Annual return expectations among Hong Kongers have risen from 9% in 2017 to 11.4% this year, according to the Schroders Global Investor Study 2021, which surveyed 23,000 savers around the world, including 500 from Hong Kong.

Strikingly, 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 expect their annual total return to exceed 25% every year over the next five years.

Hong Kong investors’ optimism comes at a time of extreme uncertainty, as global economies continue to recover from the seismic shock of the pandemic. This is despite the fact that actual investment values have followed a much rockier path.

Lower returns

Real-life stock market returns during this period proved highly volatile, ranging from 28% growth in 2019 to a drop of 8% in 2018, according to Schroders.

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 months.

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

This is 4.2% less than the hoped-for returns of Hong Kong investors, and the strategists’ 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’ predictions for returns in most developed markets have fallen over the past 12 months.

“Investors need to be cautious over investment return expectations,” said Podmore.

On the other hand, “a positive trend arising from the pandemic and its uncertainty is a stronger interest by investors in the state of their finances,” he added.

“But the past 18 months have taught us that the future is difficult to predict. By succumbing to a cognitive error, such as hindsight bias, the risk is that Hong Kong savers lose sight of the long-term goals and plans which should underpin their investing.”  

Part of the Mark Allen Group.