Despite ongoing geopolitical uncertainties and demographic hurdles, substantial return opportunities are opening up for long-term investors. As J.P. Morgan Asset Management outlines in the 31st edition of its Long-Term Capital Market Assumptions (LTCMA), a global wave of investment, particularly in artificial intelligence and foundational technologies, is driving the strongest growth potential in developed economies for 15 years. The outlook analyses returns and risks over a horizon of ten to 15 years against the backdrop of continued inflation volatility.
Higher returns through tangible assets and alternative investments
For a traditional, 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 closer correlations between these two traditional asset classes are expected in the coming years, targeted diversification becomes increasingly important. The inclusion of alternative segments such as real assets can significantly enhance this profile. An expanded portfolio allocating 30 per cent to diversified alternative asset classes lifts the expected return to 7.0 per cent and improves the Sharpe ratio by 21 per cent compared with the standard model.
John Bilton, Global Head of Strategic Research for Multi-Asset Solutions at J.P. Morgan Asset Management, notes that markets remain shaped by economic nationalism, technological transformation and a realignment of capital flows. In his view, higher baseline growth and robust allocations create reliable sources of return as well as effective inflation protection. Capital market strategist Tilmann Galler adds that the global economy faces a pronounced investment cycle. While AI adoption supports productivity, fiscal deficits and geopolitical factors make inflation more prone to volatility over the forecast period.
Shifts in international capital markets
By 2040, the technology boost is projected to increase macroeconomic productivity by 50 per cent to 120 basis points. For real economic growth in the US, experts forecast 2.1 per cent, while nominal growth in developed countries is seen at 4.2 per cent. A reassessment is emerging in equity markets: the expected return for eurozone large-cap equities stands at 7.6 per cent, and at 7.0 per cent in euros for US stocks. Developed markets thus outperform emerging markets, which are estimated at 6.6 per cent, for the first time.
- —Annual return expectations for European government bonds rise from 3.4 to 4.2 per cent.
- —Intermediate-maturity US Treasuries are estimated to deliver a return of 4.6 per cent per year.
- —US investment-grade corporate bonds reach a projected 6.1 per cent.
- —Global bonds show the highest return figure in 20 years at 4.8 per cent.
Grace Peters, Global Co-Head of Investment Strategy at J.P. Morgan Private Bank, emphasises in this context that optimising the risk-return profile is essential in the current market environment. Broad diversification offers active investors more favourable conditions than the general headlines might suggest, particularly through the inclusion of tangible assets and private market structures that provide stability in an inflation-volatile environment.
