Despite global uncertainties, technological innovations and the adoption of artificial intelligence offer long-term investors the strongest growth potential across developed economies in 15 years. This is shown in the 31st edition of the Long-Term Capital Market Assumptions (LTCMA) by J.P. Morgan Asset Management, which analyses an investment horizon of ten to 15 years. Experts anticipate that the global investment drive will lift macroeconomic productivity by 50 per cent to 120 basis points by 2040. Real economic growth in the US is projected at 2.1 per cent, while nominal growth in developed economies is expected to reach 4.2 per cent.
Higher return expectations through the addition of alternative investments
For a conventional euro-denominated portfolio comprising 60 per cent equities and 40 per cent bonds, the analysis forecasts an annual return of 6.2 per cent. As higher correlations must be expected between the two segments going forward, structured diversification is gaining importance. Supplementing this allocation with 30 per cent in diversified alternative asset classes, such as real assets and tangible assets, raises the return expectation to 7.0 per cent per year. At the same time, the risk profile improves, with the Sharpe ratio advancing by 21 per cent compared to the traditional 60/40 approach.
John Bilton, Global Head of Strategic Research for Multi-Asset Solutions at J.P. Morgan Asset Management, emphasises that the findings provide investors with guidance in an environment shaped by economic nationalism and a realignment of capital flows. Resilient portfolios offer effective protection against inflation. Capital market strategist Tilmann Galler adds that the global economy stands before a profound investment cycle. While productivity bolsters earnings prospects, demographic hurdles and public deficits will make inflation more volatile over the forecast horizon.
Shifts in equities, bonds and real assets
In the equity market segment, margins exceeding 15 per cent raise the forecast for US large caps by 80 basis points to 7.0 per cent in euros, while Eurozone large caps are estimated at 7.6 per cent. Developed markets thereby outperform emerging markets, which are projected at 6.6 per cent. Fixed income markets are also seeing a significant turning point, with the forecast for global bonds climbing to 4.8 per cent, representing the highest level in two decades.
- —For European government bonds, return assumptions over the observation period rise from 3.4 to 4.2 per cent.
- —Intermediate US Treasuries reach a projected return of 4.6 per cent in US dollars.
- —US investment-grade corporate bonds are seen at 6.1 per cent, supported by issuances from major technology companies.
- —For euro high-yield bonds, expectations increase from 3.4 to 4.2 per cent, while US high-yield securities stand at 6.7 per cent.
Grace Peters, Global Co-Head of Investment Strategy at J.P. Morgan Private Bank, highlights that optimising risk and return is essential in the current market environment. In view of persistent currency risks and inflation swings, the report underlines the role of real assets and private markets. Tangible assets remain fundamental for long-term wealth preservation.
