Reasonable returns for 2023 - but also increased volatility


In general, 2023 returns have been solid, and we have currently obtained a return corresponding what we would normally expect for an entire year.  

Recently, we have seen increased volatility in the financial markets. Among other things, this is driven by share markets being priced based on an expectation that there will not be further increases in interest rates this year and that next year will bring six reductions of interest rates by 0.25 percent each. Furthermore, the American economy is expected to grow by 3 percent and the American businesses to see growing earnings. 
All in all, there are extremely positive expectations for the future - and even a bit too positive, we believe. As of 31 July 2023, customers with medium risk and more than 15 years until retirement had obtained a return of 6.8 - 9.1 percent, depending on the selected product. In August, however, the development in the share markets have been negative. The world index MSCI World have lost just about 3 percent, which has had a negative effect on the return since the end of July. By the end of August, these customers have thus obtained a return of 5.6-8.0 percent.

Source: Nikolaj Holdt Mikkelsen

”I am probably not quite as optimistic as the ones indicating a plus for the remainder of 2023. All things considered, share market prices are fairly high at the moment. We therefore expect that share markets may lose momentum and provide some losses relative to current levels. However, the market has been good this year, and we expect positive returns for the year as a whole,” Chief Investment Officer Anders Stensbøl, explains.

Great uncertainty about the direction of the world economy

The level of uncertainty about which way the world economy is moving has hardly ever been this high. This means that we are seeing big differences between the regions. E.g. there is a beginning recession in Germany, while the development of the Danish economy is still strong. In Velliv we therefore operate with two main scenarios for the development, and we have thus still reduced stock exposure in our portfolios.

No matter the development, it is important to stress that we are in a good position. Households around the world look much stronger than going into previous crises. And consumers have once again been key in leaving a recession behind. Central banks can also boost activity by lowering interest rates again. And Denmark has one of the world's strongest economies.


Velliv's three scenarios for the development in the coming 15 months

  1. The positive scenario: The soft landing – 45 percent probability
    The soft landing is a scenario where the recession is avoided, and the world economy continues its growth. This way we avoid a major crisis with increasing unemployment rates, liquidations etc.
  2. The negative scenario: Recession – 45 percent probability
    Following the central banks many and big increases in interest rates to slow down inflation, activity in society drops to a lower level. This will result in more people losing their jobs, and the banks will have to accept more losses on corporate as well private loans.

  3. The very positive scenario: Goldilocks - 10 percent probability
    We have not seen the top yet. The world comes out stronger. Growth further increases, and the world economy activity picks up the pace. Meanwhile, the inflation continues to drop towards the 2 percent. The unemployment rate and the number of liquidations will also drop.

If you are interested in knowing more about investments and economy, tune in to Velliv's investment podcast "Ansvar for penge" (in Danish) published once a month. The podcast includes inspiration and advice from Velliv's internal as well as external investment experts. Find the podcast on your preferred podcast platform.