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Visualizing Portfolio Return Expectations, by Country

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Visualizing Portfolio Return Expectations, by Country

Visualizing Portfolio Return Expectations, by Country

Visualizing Portfolio Return Expectations, by Country

How do investors’ return expectations differ from those of advisors? How does this expectation gap shift across countries?

Despite 2022 being the worst year for stock markets in over a decade, investors around the world appear confident about the long-term performance of their portfolios. These convictions point towards resilience across global economies, driven by strong labor markets and moderating inflation.

While advisors are optimistic, their expectations are more conservative overall.

This graphic shows the return expectation gap by country between investors and financial professionals in 2023, based on data from Natixis.

Expectation Gap by Country

Below, we show the return expectation gap by country, based on a survey of 8,550 investors and 2,700 financial professionals:

Long-Term Annual
Return Expectations
InvestorsFinancial
Professionals
Expectations Gap
๐Ÿ‡บ๐Ÿ‡ธ U.S.15.6%7.0%2.2X
๐Ÿ‡จ๐Ÿ‡ฑ Chile15.1%14.5%1.0X
๐Ÿ‡ฒ๐Ÿ‡ฝ Mexico14.7%14.0%1.1X
๐Ÿ‡ธ๐Ÿ‡ฌ Singapore14.5%14.2%1.0X
๐Ÿ‡ฏ๐Ÿ‡ต Japan13.6%8.7%1.6X
๐Ÿ‡ฆ๐Ÿ‡บ Australia12.5%6.9%1.8X
๐Ÿ‡ญ๐Ÿ‡ฐ Hong Kong SAR12.4%7.6%1.6X
๐Ÿ‡จ๐Ÿ‡ฆ Canada10.6%6.5%1.6X
๐Ÿ‡ช๐Ÿ‡ธ Spain10.6%7.6%1.4X
๐Ÿ‡ฉ๐Ÿ‡ช Germany10.1%7.0%1.4X
๐Ÿ‡ฎ๐Ÿ‡น Italy9.6%6.3%1.5X
๐Ÿ‡จ๐Ÿ‡ญ Switzerland9.6%6.9%1.4X
๐Ÿ‡ซ๐Ÿ‡ท France8.9%6.6%1.3X
๐Ÿ‡ฌ๐Ÿ‡ง UK8.1%6.2%1.3X
๐ŸŒ Global12.8%9.0%1.4X

Investors in the U.S. have the highest long-term annual return expectations, at 15.6%. The U.S. also has the highest expectations gap across countries, with investorsโ€™ expectations more than double that of advisors.

Likely influencing investor convictions are the outsized returns seen in the last decade, led by big tech. This year is no exception, as a handful of tech giants are seeing soaring returns, lifting the overall market.

From a broader perspective, the S&P 500 has returned 11.5% on average annually since 1928.

Following next in line were investors in Chile and Mexico with return expectations of 15.1% and 14.7%, respectively. Unlike many global markets, the MSCI Chile Index posted double-digit returns in 2022.

Global financial hub, Singapore, has the lowest expectations gap across countries.

Investors in the UK and Europe, have the most moderate return expectations overall. Confidence has been weighed down by geopolitical tensions, high interest rates, and dismal economic data.

Return Expectations Across Asset Classes

What are the expected returns for different asset classes over the next decade?

A separate report by Vanguard used a quantitative model to forecast returns through to 2033. For U.S. equities, it projects 4.1-6.1% in annualized returns. Global equities are forecast to have 6.4-8.4% returns, outperforming U.S. stocks over the next decade.

Bonds, meanwhile, are forecast to see 3.6-4.6% annualized returns for the U.S. aggregate market, while U.S. Treasuries are projected to average 3.3-4.3% annually.

While it’s impossible to predict the future, we can see a clear expectation gap not only between countries, but between advisors, clients, and other models. Factors such as inflation, interest rates, and the ability for countries to weather economic headwinds will likely have a significant influence on future portfolio returns.

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Mapped: GDP Growth Forecasts by Country in 2024

Will global GDP growth continue to be resilient in 2024? This graphic shows the economic outlook for 191 economies around the world.

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This map shows GDP growth projections in 2024.

Mapped: GDP Growth Forecasts by Country in 2024

Resilient GDP growth and falling inflation are spurring a brighter outlook for 2024, although cautions remain across global economies.

While investors are hopeful that U.S. rate cuts could happen as early as May, the Fed has signaled that it wonโ€™t โ€œdeclare victoryโ€ too soon. As countries around the world maneuver a complex landscape, they are faced with a scope of risks that include inflationary spikes, rising debt loads, and dwindling consumer savings.

This graphic shows global GDP growth projections in 2024, based on the International Monetary Fund (IMF) October 2023 Outlook and January 2024 update.

Global GDP Growth Outlook 2024

In 2024, real GDP growth is forecast to increase 3.1%, a slight rise from Octoberโ€™s outlook.

While positive growth is projected across all regions, it varies widely due to many factors spanning from the effects of higher borrowing costs to low consumer sentiment. Here are forecasts across 191 countries worldwide:

Country2024 Real GDP % Change (Projected)2023 Real GDP % Change (Estimate)
๐Ÿ‡ฆ๐Ÿ‡ฑ Albania3.3%3.6%
๐Ÿ‡ฉ๐Ÿ‡ฟ Algeria3.1%3.8%
๐Ÿ‡ฆ๐Ÿ‡ฉ Andorra1.5%2.1%
๐Ÿ‡ฆ๐Ÿ‡ด Angola3.3%1.3%
๐Ÿ‡ฆ๐Ÿ‡ฌ Antigua and Barbuda5.4%5.6%
๐Ÿ‡ฆ๐Ÿ‡ท Argentina2.8%-2.5%
๐Ÿ‡ฆ๐Ÿ‡ฒ Armenia5.0%7.0%
๐Ÿ‡ฆ๐Ÿ‡ผ Aruba1.2%2.3%
๐Ÿ‡ฆ๐Ÿ‡บ Australia1.2%1.8%
๐Ÿ‡ฆ๐Ÿ‡น Austria0.8%0.1%
๐Ÿ‡ฆ๐Ÿ‡ฟ Azerbaijan2.5%2.5%
๐Ÿ‡ง๐Ÿ‡ธ The Bahamas1.8%2.7%
๐Ÿ‡ง๐Ÿ‡ญ Bahrain3.6%6.0%
๐Ÿ‡ง๐Ÿ‡ฉ Bangladesh6.0%4.5%
๐Ÿ‡ง๐Ÿ‡ง Barbados3.9%1.6%
๐Ÿ‡ง๐Ÿ‡พ Belarus1.3%1.0%
๐Ÿ‡ง๐Ÿ‡ช Belgium0.9%4.0%
๐Ÿ‡ง๐Ÿ‡ฟ Belize3.0%5.5%
๐Ÿ‡ง๐Ÿ‡ฏ Benin6.3%5.3%
๐Ÿ‡ง๐Ÿ‡น Bhutan3.0%1.8%
๐Ÿ‡ง๐Ÿ‡ด Bolivia1.8%2.0%
๐Ÿ‡ง๐Ÿ‡ฆ Bosnia and Herzegovina3.0%3.8%
๐Ÿ‡ง๐Ÿ‡ผ Botswana4.1%3.1%
๐Ÿ‡ง๐Ÿ‡ท Brazil*1.7%-0.8%
๐Ÿ‡ง๐Ÿ‡ณ Brunei Darussalam3.5%1.7%
๐Ÿ‡ง๐Ÿ‡ฌ Bulgaria3.2%4.4%
๐Ÿ‡ง๐Ÿ‡ซ Burkina Faso6.4%3.3%
๐Ÿ‡ง๐Ÿ‡ฎ Burundi6.0%4.4%
๐Ÿ‡จ๐Ÿ‡ป Cabo Verde4.5%5.6%
๐Ÿ‡ฐ๐Ÿ‡ญ Cambodia6.1%4.0%
๐Ÿ‡จ๐Ÿ‡ฒ Cameroon4.2%1.3%
๐Ÿ‡จ๐Ÿ‡ฆ Canada*1.4%1.0%
๐Ÿ‡จ๐Ÿ‡ซ Central African Republic2.5%4.0%
๐Ÿ‡น๐Ÿ‡ฉ Chad3.7%-0.5%
๐Ÿ‡จ๐Ÿ‡ฑ Chile1.6%5.0%
๐Ÿ‡จ๐Ÿ‡ณ China*4.6%1.4%
๐Ÿ‡จ๐Ÿ‡ด Colombia2.0%3.0%
๐Ÿ‡ฐ๐Ÿ‡ฒ Comoros3.5%4.4%
๐Ÿ‡จ๐Ÿ‡ฉ Democratic Republic of the Congo4.7%2.7%
๐Ÿ‡จ๐Ÿ‡ฌ Republic of Congo4.4%6.2%
๐Ÿ‡จ๐Ÿ‡ท Costa Rica3.2%2.2%
๐Ÿ‡จ๐Ÿ‡ฎ Cรดte d'Ivoire6.6%0.2%
๐Ÿ‡ญ๐Ÿ‡ท Croatia2.6%6.7%
๐Ÿ‡จ๐Ÿ‡พ Cyprus2.7%1.7%
๐Ÿ‡จ๐Ÿ‡ฟ Czech Republic2.3%5.0%
๐Ÿ‡ฉ๐Ÿ‡ฐ Denmark1.4%4.6%
๐Ÿ‡ฉ๐Ÿ‡ฏ Djibouti6.0%3.0%
๐Ÿ‡ฉ๐Ÿ‡ฒ Dominica4.6%1.4%
๐Ÿ‡ฉ๐Ÿ‡ด Dominican Republic5.2%4.2%
๐Ÿ‡ช๐Ÿ‡จ Ecuador1.8%2.2%
๐Ÿ‡ช๐Ÿ‡ฌ Egypt3.6%-6.2%
๐Ÿ‡ธ๐Ÿ‡ป El Salvador1.9%-2.3%
๐Ÿ‡ฌ๐Ÿ‡ถ Equatorial Guinea-5.5%3.1%
๐Ÿ‡ช๐Ÿ‡ช Estonia2.4%6.1%
๐Ÿ‡ธ๐Ÿ‡ฟ Eswatini3.3%7.5%
๐Ÿ‡ช๐Ÿ‡น Ethiopia6.2%-0.1%
๐Ÿ‡ซ๐Ÿ‡ฏ Fiji3.9%1.0%
๐Ÿ‡ซ๐Ÿ‡ฎ Finland1.0%2.8%
๐Ÿ‡ซ๐Ÿ‡ท France*1.0%6.2%
๐Ÿ‡ฌ๐Ÿ‡ฆ Gabon2.6%-0.5%
๐Ÿ‡ฌ๐Ÿ‡ฒ The Gambia6.2%1.2%
๐Ÿ‡ฌ๐Ÿ‡ช Georgia4.8%2.5%
๐Ÿ‡ฉ๐Ÿ‡ช Germany*0.5%3.9%
๐Ÿ‡ฌ๐Ÿ‡ญ Ghana2.7%3.4%
๐Ÿ‡ฌ๐Ÿ‡ท Greece2.0%5.9%
๐Ÿ‡ฌ๐Ÿ‡ฉ Grenada3.8%4.5%
๐Ÿ‡ฌ๐Ÿ‡น Guatemala3.5%38.4%
๐Ÿ‡ฌ๐Ÿ‡ณ Guinea5.6%-1.5%
๐Ÿ‡ฌ๐Ÿ‡ผ Guinea-Bissau5.0%2.9%
๐Ÿ‡ฌ๐Ÿ‡พ Guyana26.6%4.4%
๐Ÿ‡ญ๐Ÿ‡น Haiti1.4%-0.3%
๐Ÿ‡ญ๐Ÿ‡ณ Honduras3.2%3.3%
๐Ÿ‡ญ๐Ÿ‡ฐ Hong Kong SAR2.9%6.3%
๐Ÿ‡ญ๐Ÿ‡บ Hungary3.1%5.0%
๐Ÿ‡ฎ๐Ÿ‡ธ Iceland1.7%-2.7%
๐Ÿ‡ฎ๐Ÿ‡ณ India*6.5%2.0%
๐Ÿ‡ฎ๐Ÿ‡ฉ Indonesia5.0%3.0%
๐Ÿ‡ฎ๐Ÿ‡ท Iran2.5%3.1%
๐Ÿ‡ฎ๐Ÿ‡ถ Iraq2.9%0.7%
๐Ÿ‡ฎ๐Ÿ‡ช Ireland3.3%2.0%
๐Ÿ‡ฎ๐Ÿ‡ฑ Israel3.0%2.0%
๐Ÿ‡ฎ๐Ÿ‡น Italy*0.7%2.6%
๐Ÿ‡ฏ๐Ÿ‡ฒ Jamaica1.8%4.6%
๐Ÿ‡ฏ๐Ÿ‡ต Japan*0.9%5.0%
๐Ÿ‡ฏ๐Ÿ‡ด Jordan2.7%2.6%
๐Ÿ‡ฐ๐Ÿ‡ฟ Kazakhstan4.2%1.4%
๐Ÿ‡ฐ๐Ÿ‡ช Kenya5.3%3.8%
๐Ÿ‡ฐ๐Ÿ‡ฎ Kiribati2.4%-0.6%
๐Ÿ‡ฐ๐Ÿ‡ท Korea2.2%3.4%
๐Ÿ‡ฝ๐Ÿ‡ฐ Kosovo4.0%4.0%
๐Ÿ‡ฐ๐Ÿ‡ผ Kuwait3.6%0.5%
๐Ÿ‡ฐ๐Ÿ‡ฌ Kyrgyz Republic4.3%2.1%
๐Ÿ‡ฑ๐Ÿ‡ฆ Lao P.D.R.4.0%4.6%
๐Ÿ‡ฑ๐Ÿ‡ป Latvia2.6%12.5%
๐Ÿ‡ฑ๐Ÿ‡ธ Lesotho2.3%-0.2%
๐Ÿ‡ฑ๐Ÿ‡ท Liberia5.3%-0.4%
๐Ÿ‡ฑ๐Ÿ‡พ Libya7.5%74.4%
๐Ÿ‡ฑ๐Ÿ‡น Lithuania2.7%4.0%
๐Ÿ‡ฑ๐Ÿ‡บ Luxembourg1.5%1.7%
๐Ÿ‡ฒ๐Ÿ‡ด Macao SAR27.2%4.0%
๐Ÿ‡ฒ๐Ÿ‡ฌ Madagascar4.8%8.1%
๐Ÿ‡ฒ๐Ÿ‡ผ Malawi3.3%4.5%
๐Ÿ‡ฒ๐Ÿ‡พ Malaysia4.3%3.8%
๐Ÿ‡ฒ๐Ÿ‡ป Maldives5.0%3.0%
๐Ÿ‡ฒ๐Ÿ‡ฑ Mali4.8%4.5%
๐Ÿ‡ฒ๐Ÿ‡น Malta3.3%5.1%
๐Ÿ‡ฒ๐Ÿ‡ญ Marshall Islands3.0%3.2%
๐Ÿ‡ฒ๐Ÿ‡ท Mauritania5.3%2.6%
๐Ÿ‡ฒ๐Ÿ‡บ Mauritius3.8%2.0%
๐Ÿ‡ฒ๐Ÿ‡ฝ Mexico*2.7%5.5%
๐Ÿ‡ซ๐Ÿ‡ฒ Micronesia3.1%4.5%
๐Ÿ‡ฒ๐Ÿ‡ฉ Moldova4.3%2.4%
๐Ÿ‡ฒ๐Ÿ‡ณ Mongolia4.5%7.0%
๐Ÿ‡ฒ๐Ÿ‡ช Montenegro3.7%2.6%
๐Ÿ‡ฒ๐Ÿ‡ฆ Morocco3.6%2.8%
๐Ÿ‡ฒ๐Ÿ‡ฟ Mozambique5.0%0.5%
๐Ÿ‡ฒ๐Ÿ‡ฒ Myanmar2.6%0.8%
๐Ÿ‡ณ๐Ÿ‡ฆ Namibia2.7%0.6%
๐Ÿ‡ณ๐Ÿ‡ท Nauru1.3%1.1%
๐Ÿ‡ณ๐Ÿ‡ต Nepal5.0%3.0%
๐Ÿ‡ณ๐Ÿ‡ฑ Netherlands1.2%4.1%
๐Ÿ‡ณ๐Ÿ‡ฟ New Zealand1.0%2.9%
๐Ÿ‡ณ๐Ÿ‡ฎ Nicaragua3.3%2.5%
๐Ÿ‡ณ๐Ÿ‡ช Niger11.1%2.3%
๐Ÿ‡ณ๐Ÿ‡ฌ Nigeria*3.0%1.2%
๐Ÿ‡ฒ๐Ÿ‡ฐ North Macedonia3.2%-0.5%
๐Ÿ‡ณ๐Ÿ‡ด Norway1.5%0.8%
๐Ÿ‡ด๐Ÿ‡ฒ Oman2.7%6.0%
๐Ÿ‡ต๐Ÿ‡ฐ Pakistan2.5%3.0%
๐Ÿ‡ต๐Ÿ‡ผ Palau12.4%4.5%
๐Ÿ‡ต๐Ÿ‡ฆ Panama4.0%1.1%
๐Ÿ‡ต๐Ÿ‡ฌ Papua New Guinea5.0%5.3%
๐Ÿ‡ต๐Ÿ‡พ Paraguay3.8%0.6%
๐Ÿ‡ต๐Ÿ‡ช Peru2.7%2.3%
๐Ÿ‡ต๐Ÿ‡ญ Philippines5.9%-0.7%
๐Ÿ‡ต๐Ÿ‡ฑ Poland2.3%2.4%
๐Ÿ‡ต๐Ÿ‡น Portugal1.5%4.0%
๐Ÿ‡ต๐Ÿ‡ท Puerto Rico-0.2%2.2%
๐Ÿ‡ถ๐Ÿ‡ฆ Qatar2.2%2.2%
๐Ÿ‡ท๐Ÿ‡ด Romania3.8%6.2%
๐Ÿ‡ท๐Ÿ‡บ Russia*2.6%0.5%
๐Ÿ‡ท๐Ÿ‡ผ Rwanda7.0%8.0%
๐Ÿ‡ผ๐Ÿ‡ธ Samoa3.6%2.2%
๐Ÿ‡ธ๐Ÿ‡ฒ San Marino1.3%0.8%
๐Ÿ‡ธ๐Ÿ‡น Sรฃo Tomรฉ and Prรญncipe2.4%4.1%
๐Ÿ‡ธ๐Ÿ‡ฆ Saudi Arabia*2.7%2.0%
๐Ÿ‡ธ๐Ÿ‡ณ Senegal8.8%4.2%
๐Ÿ‡ท๐Ÿ‡ธ Serbia3.0%2.7%
๐Ÿ‡ธ๐Ÿ‡จ Seychelles3.9%1.0%
๐Ÿ‡ธ๐Ÿ‡ฑ Sierra Leone4.7%1.3%
๐Ÿ‡ธ๐Ÿ‡ฌ Singapore2.1%2.0%
๐Ÿ‡ธ๐Ÿ‡ฐ Slovak Republic2.5%2.5%
๐Ÿ‡ธ๐Ÿ‡ฎ Slovenia2.2%2.8%
๐Ÿ‡ธ๐Ÿ‡ง Solomon Islands2.4%0.9%
๐Ÿ‡ธ๐Ÿ‡ด Somalia3.7%3.5%
๐Ÿ‡ฟ๐Ÿ‡ฆ South Africa*1.0%2.5%
๐Ÿ‡ธ๐Ÿ‡ธ South Sudan4.2%4.9%
๐Ÿ‡ช๐Ÿ‡ธ Spain*1.5%3.2%
๐Ÿ‡ฐ๐Ÿ‡ณ St. Kitts and Nevis3.8%6.2%
๐Ÿ‡ฑ๐Ÿ‡จ St. Lucia2.3%-18.3%
๐Ÿ‡ป๐Ÿ‡จ St. Vincent and the Grenadines5.0%2.1%
๐Ÿ‡ธ๐Ÿ‡ฉ Sudan0.3%-0.7%
๐Ÿ‡ธ๐Ÿ‡ท Suriname3.0%0.9%
๐Ÿ‡ธ๐Ÿ‡ช Sweden0.6%4.0%
๐Ÿ‡จ๐Ÿ‡ญ Switzerland1.8%0.8%
๐Ÿ‡น๐Ÿ‡ผ Taiwan3.0%6.5%
๐Ÿ‡น๐Ÿ‡ฏ Tajikistan5.0%5.2%
๐Ÿ‡น๐Ÿ‡ฟ Tanzania6.1%2.7%
๐Ÿ‡น๐Ÿ‡ญ Thailand3.2%4.3%
๐Ÿ‡น๐Ÿ‡ฑ Timor-Leste3.1%5.6%
๐Ÿ‡น๐Ÿ‡ฌ Togo5.3%1.5%
๐Ÿ‡น๐Ÿ‡ด Tonga2.5%5.4%
๐Ÿ‡น๐Ÿ‡น Trinidad and Tobago2.2%2.6%
๐Ÿ‡น๐Ÿ‡ณ Tunisia1.9%2.5%
๐Ÿ‡น๐Ÿ‡ท Tรผrkiye3.0%1.3%
๐Ÿ‡น๐Ÿ‡ฒ Turkmenistan2.1%2.5%
๐Ÿ‡น๐Ÿ‡ป Tuvalu3.5%3.9%
๐Ÿ‡บ๐Ÿ‡ฌ Uganda5.7%4.6%
๐Ÿ‡บ๐Ÿ‡ฆ Ukraine3.2%2.0%
๐Ÿ‡ฆ๐Ÿ‡ช United Arab Emirates4.0%3.4%
๐Ÿ‡ฌ๐Ÿ‡ง United Kingdom*0.6%0.5%
๐Ÿ‡บ๐Ÿ‡ธ U.S.*2.1%2.1%
๐Ÿ‡บ๐Ÿ‡พ Uruguay3.3%1.0%
๐Ÿ‡บ๐Ÿ‡ฟ Uzbekistan5.5%5.5%
๐Ÿ‡ป๐Ÿ‡บ Vanuatu2.6%1.5%
๐Ÿ‡ป๐Ÿ‡ช Venezuela4.5%4.0%
๐Ÿ‡ป๐Ÿ‡ณ Vietnam5.8%4.7%
๐Ÿ‡ต๐Ÿ‡ธ West Bank and Gaza2.7%3.0%
๐Ÿ‡พ๐Ÿ‡ช Yemen2.0%-0.5%
๐Ÿ‡ฟ๐Ÿ‡ฒ Zambia4.3%3.6%
๐Ÿ‡ฟ๐Ÿ‡ผ Zimbabwe3.6%4.1%

*Reflect updated figures from the January 2024 IMF Update

In the United States, GDP growth is projected to remain moderately strong, supported by rising real wages boosting consumption across the economy.

Yet compared to last year, growth is set to slow amid a softening labor market. In 2024, Citigroup announced it was laying off 20,000 employees after a disappointing year. Meanwhile, tech firms such as Google, Amazon, and Salesforce are reducing headcounts. Along with this, package delivery giant UPS announced 12,000 job cuts.

In China, property market woes are dragging on economic growth. Declining real estate values have impacted incomes, assets, and the public mood. Due to these headwinds, consumption growth is forecast to drop over the year.

Over in Latin America, Chile and Brazil were among the first emerging countries to hike interest rates in 2021โ€”and they were some of the first to cut them last year. Thanks to improving domestic demand amid dissipating price spikes, the IMF upgraded the outlooks for Brazil and Mexico in 2024.

The lowest growth across all regions is forecast to be seen in Europe, at 0.9%. In late 2023, Signa, a multi-billion European property firm collapsed following the sharpest rise in interest rates in the European Union’s 25-year history. Also dimming the outlook is low consumer sentiment and the impact of high energy prices.

What are the Key Risks?

While no one holds a crystal ball, there are certain risks outlined by the IMF that could negatively impact global GDP growth:

  • Sharply Rising Commodity Prices: If geopolitical tensions escalate in the Israel-Hamas war, it could spillover into the broader region leading to spikes in energy prices. Over a third of global oil exports are based out of the region, in addition to 14% of global gas exports. Adding to this, 11% of international trade passes through the Red Sea, which has seen continued attacks between Iran-backed Houthi rebels and strikes from the U.S. and its allies.
  • Stubborn Inflation: A return of supply disruptions paired with an overheated labor market could add inflationary pressures, potentially leading to higher interest rates. In turn, stock markets could respond adversely and financial stability could deteriorate.
  • Chinaโ€™s Economy Slows: A property market rout could hurt domestic growth and consumer confidence, leading to declining consumption across the country. Accounting for nearly 19% of global GDP (PPP) in 2023, a slowing Chinese economy could impact countries that rely on trade with China.

While these risks remain present, the economy could witness positive surprises as well. Should inflation fall faster than expected, it would likely lead to monetary easing and a boost to global economic growth. Overall, the global economy defied expectations in 2023, and it may do the same in 2024.

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Markets in a Minute

Chart: Is ESG Investing in Decline?

After the pandemic boom, ESG investments lost their luster amid high interest rates. Could they make a comeback?

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This graphic shows flows of ESG investments in the U.S.

Is ESG Investing in Decline?

These days, ESG investments have lost their luster given high interest rates, political backlash, and greenwashing scrutiny.

In 2021 during the pandemic boom, U.S. sustainable funds hit a record $358 billion in assets, up from $95 billion in 2017. But since then, investor interest has waned as higher borrowing costs impact capital-intensive clean tech stocks.

This graphic shows the drop in sustainable fund flowsโ€”often considered an indicator of investor sentimentโ€”based on data from Morningstar.

Slowing Demand

In 2023, investor appetite cooled for sustainable investments, as fund flows notched their worst year on record.

Overall, flows sank $13 billion as fund performance lagged behind conventional funds. Adding to this, concerns surrounding the murkiness of environmental, social, and governance (ESG) ratings were put under the spotlight.

As ESG pushback intensified in U.S. politics, at least 165 anti-ESG bills were introduced in 2023. Politicians have claimed that ESG criteria negatively impacts financial returns, but evidence behind that is mixed.

While sustainable funds underperformed traditional funds in 2023, a separate study showed that ESG portfolios had as much as 6% excess returns annually compared to benchmark indexes between 2014 and 2020.

ESG Investments: A Closer Look

One key aspect of ESG funds is whether they hold investments that align with the UN Sustainable Development Goals (SDGs).

Globally, 542 funds with $125 billion in assets are associated with at least one of these objectives. The table below shows the top five SDGs, by ETF assets under management (AUM).

SDGGoalNumber of ETFsAUM
SDG 13Climate Action275$65.4B
SDG 7Affordable
and Clean Energy
80$15.3B
SDG 9Industry, Innovation,
and Infrastructure
49$13.4B
SDG 6Clean Water
and Sanitation
16$9.1B
SDG 11Sustainable Cities
and Communities
34$5.5B

Source: Trackinsight. As of January 7, 2024.

We can see that Climate Action is the highest overall, with companies held in these ETFs making commitments to lower emissions and advance sustainability.

For instance, Home Depot has cut electricity use by over 50% since 2010 in U.S. stores, and aims to use renewables for all of its electricity by 2030. In addition, Microsoft has committed to this goal through a number of initiatives, including providing access to clean water to over one million people across Indonesia, Brazil, India, and Mexico in 2023.

While investor interest has slowed, 35% of advisors said they used ESG funds last year, based on a Journal of Financial Planning survey. As the industry matures, it remains to be seen if ESG investments will see a resurgence, especially if interest rates fall in the coming years.

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