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

Tom Burroughes, Group Editor , 8 November 2019

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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.

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