🚨(16 Must Read) 🌐 Strategic Asset Allocation 👇
💡 Exclusive Macro & Business Insights
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Strategic Asset Allocation 👇
(16 Must Read)
✔ “Starting with the macroeconomic backdrop, the next five years are expected to be characterised by a mild global recession followed by a sluggish recovery”
FOCUSING ON THE LONG RUN ⏱️
✔ “Inflation rates are expected to glide gradually lower from their recent multi-decade highs but are expected to remain above target into 2024.”
✔ “European economies are balancing a cost-of-living squeeze and government debt on one side, and runaway inflation on the other.”
CASH IS BACK 💰
✔ “In the absence of a deep global recession, the loosening of monetary policy should play out only gradually.”
✔ “From 2025, central banks are expected to lower policy rates to the respective terminal rates: between 2.5% and 3.0% for the 🇬🇧 Bank of England, slightly above 2.0% for the 🇺🇸 US Federal Reserve, between 1.5% and 2% for the 🇪🇺 European Central Bank, and below 1% for the 🇨🇭 Swiss National Bank.”
✔ “As a result, long-term expected cash returns are well above historical averages.”
✔ “In fact, expectations for the next five years are more than double the average return over the last two decades for holdings in the US dollar and euro, and 30% higher for sterling. However, only US dollar cash returns are likely to compensate for inflation.”
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STAGFLATIONARY ENVIRONMENT 👇
✔ “The implications of a stagflationary environment on expected asset class returns become more apparent when returns are broken down into the building blocks of income, growth and valuation.”
✔ “Growth expectations, which are reflected in earnings growth for equities or roll return in fixed income, are muted.”
✔ “As a result, fixed income returns receive a larger boost compared with their historical average.”
✔ “Equity returns, which have a higher reliance on the growth component, do not profit from the expected macro environment.”
FIXED INCOME 👇
✔ “After their worst year in decades, government bonds look primed to rival the returns of equities in the early years of the forecast horizon.”
✔ “Supported by attractive yields, we anticipate that government bonds should return between 2.5% and 6.0% over the next five years, above the historical averages of the last two decades.”
✔ “Elevated, but still negative, levels of correlation between equities and bonds are expected over the next five years.”
EQUITIES: FAIRLY VALUED BUT WITH MUTED GROWTH PROSPECTS 👇
✔ “The expected returns for equities are close to the historical averages of the last 20 years, except for US equities, which were particularly high historically due to stronger earnings growth.”
✔ “With a lot of the expected downside already priced in, return projections for equities have been lifted slightly, to between 7.0% and 8.0% for developed markets, and 10.5% for emerging markets.”
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Disclosure
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.