Bob Homan: Why is the risk premium so low?

February 10, 2026

Risk Management Outlook

_{This column was originally written in Dutch. This is an English translation.}

By Bob Homan, Head of ING Investment Office

Judging by the major indices, the market appears calm. But beneath the surface, things are certainly bubbling. The day will come when investors will want to be compensated for the extra risk.

On the surface, there seems to be little going on in the stock markets. The global index is up one per cent, Europe is performing slightly better than average, emerging markets are doing even better, and the US is just below that. But underlying this, the picture is turbulent. If you thought last year's fluctuations were significant – they were greater than ever – then this year's picture is even more intense than in 2025. Not only are the differences between sectors significant – energy on the positive side and IT on the negative – but there is also considerable volatility within sectors.

Markets separate opportunities and risks

Where do these differences come from? Investors are increasingly asking themselves how solid the AI narrative surrounding an individual company really is. Some companies are rewarded with valuations that are well ahead of reality, while others with equally strong fundamentals are hit hard. This spread does not have to be negative. On the contrary, it shows that markets are trying to distinguish between opportunities and risks. The only issue is that such a wide range of outcomes significantly reduces predictability. And when outcomes become more uncertain, it stands to reason that investors will demand more compensation for taking that risk. However, that compensation – the so-called risk premium on equities (return on equity minus the risk-free interest rate) – is at its lowest level in more than twenty years.

Only a few per cent more this year

This brings me to my next point. Our return expectations for this year are lower than those of most major banks and asset managers. While they generally expect stock markets to rise sharply, driven by expected earnings growth of more than 10%, our expectations are more modest. From the current level, we expect only a few per cent growth. This is because we expect the risk premium to increase due to the uncertainty surrounding AI and the overall policy of the US. This will therefore reduce returns.

US policy uncertainty drives risk premiums

This policy uncertainty has been around for a while. And we already knew that Trump likes to take firm control. But the way he now occasionally intervenes directly and undermines business models is new. Policy proposals on limits on credit card fees, dividend payments by defence companies and the curbing of profits and premiums by health insurers illustrate how quickly profit prospects can change. That does not necessarily have to be a bad thing. Some measures may actually relieve consumers and lead to additional spending. But for investors, it mainly means that business risks are becoming less clear-cut. That uncertainty does not necessarily cast a shadow over the market, but it does make it clear that risk premiums are more likely to rise than fall.

Fortunately, the economic outlook is not bleak and companies are performing well on average, which means that risk premiums have remained low for the time being and share prices have remained stable. But below the average, there is considerable turmoil. There will come a day when investors will want to be compensated for the risk they are indeed running.