Investment Strategies
JP Morgan AM Medium-Term Forecast: No Fireworks, Equity Returns To Moderate

One of the world's investment industry big-hitters sets out its medium-term forecasts, covering equities, bonds and other major asset classes.
Research from JP Morgan
Asset Management, which oversees $1.9 trillion of client
money, reckons that global economic growth will be sluggish in
the next 10 to 15 years; while equities will produce higher
returns than bonds, it looks as though the heyday for big gains
on stocks is past.
The outlook comes from the US firm’s 2020 Long-Term Capital
Market Assumptions; it covers the average annual returns
investors can expect for more than 50 major asset classes.
The report’s gross domestic product forecasts declined for
emerging markets including Asia, most notably for China. JPMAM
predicts that China’s GDP growth is likely to fall to an average
4.4 per cent annually over the next 10 to 15 years – considerably
lower than its double-digit average pace over the last few
decades, but still rapid for a large economy.
“Investors are rethinking ‘safe-havens’ in their portfolios now
that bonds simply will not offer the same combination of
portfolio protection and positive income that they have in the
past,” Patrik Schöwitz, global multi-asset strategist, JPMAM,
said.
The report also suggests that financial market trends will take
centre stage in China in coming years.
“Capital markets will likely develop faster than the rate of GDP
growth, deepening opportunities for foreign investors. Sector
shifts will occur within markets and the composition of listed
equities is likely to change significantly (though banks may well
remain more prominent than elsewhere), creating nuanced
investment opportunities,” Hannah Anderson, global market
strategist, JPMAM, said.
Investment houses, while mindful that predicting the future
appears futile, typically roll out forecasts at this time of the
year, if only to give clients some idea of what sort of asset
allocation doctrine makes sense. The wealth management sector is
still grappling with how to preserve wealth in an environment
where, in many cases, cash yields are zero or negative in real
terms. This has forced many clients up the risk and illiquidity
spectrum, raising questions about how long that can endure. For
example, the US Federal Reserve has cut interest rates three
times this year, raising questions over what spare ammunition the
central bank has if or when markets fall significantly or the
economy goes into recession.
Findings
Real global growth (when inflation is stripped out) is expected
to average 2.3 per cent over the next 10-15 years, down 20 basis
points (bps) from JPMAM's projections last year. The developed
market forecast remains unchanged at 1.5 per cent but emerging
market forecasts have been trimmed by 35 bps to 3.9 per cent.
Population aging is broadly to blame for the lower forecasts for
global growth.