Experts from the US provider JP Morgan Asset Management are convinced that investors can make a lot of money on the capital markets. They just don't think much of a very specific system.
The US asset manager JP Morgan Asset Management is forecasting higher long-term nominal growth for industrialized nations thanks to high investments.
For investors, this means higher returns in the long term: for a portfolio with sixty percent global stocks and forty percent government bonds, US experts expect a long-term return of a good six percent per year in euros.
US stocks are therefore likely to generate lower returns on average over ten to 15 years than stocks from the euro area.
Despite possible high returns, experts consider cryptocurrencies to be (too) a speculative investment.
Frankfurt. The Middle East conflict and the war in Ukraine continue. Oil prices, inflation and capital market interest rates are rising, and countries are becoming increasingly indebted. Investors are also concerned with the question of how artificial intelligence (AI) is changing the world and whether the enormous investments in the new technology are worth it. George Gatch, head of US asset manager JP Morgan Asset Management, says: “The future is as unclear as ever.”
Nevertheless, more than 90 portfolio managers, economists and strategists from the asset management division of the major US bank JP Morgan dare to make a long-term forecast. In a study, they estimate how different asset classes in different regions will develop over the next ten to 15 years.
The asset manager has been producing the study called “Long-Term Capital Market Assumptions” (LTCMA) for more than 30 years. He also uses them himself to slightly shift the focus of the portfolios in strategic asset allocation.
The long-term forecasts are surprisingly positive: the prospects for many investments have improved significantly.
This is clearly shown using the example of a classic portfolio: According to the study, investors who invest 60 percent of their money in global stocks and 40 percent in global government bonds at the end of September can expect an average return of 6.2 percent per year in euros. That's almost a full percentage point more than the strategists predicted in their long-term outlook a year ago.
Tilmann Galler, capital market strategist at JP Morgan Asset Management in Frankfurt, explains in an interview with Handelsblatt why the prospects for the markets have brightened: “The basis is a long-term positive outlook for growth and productivity.”
According to the study, experts expect nominal economic growth of an average of 4.2 percent per year in the major industrial nations over the next ten to 15 years. Previously it was 4.0 percent. Galler says: “This is the best economic outlook in a decade and a half.”
Investment drives the economy
Growth is driven primarily by investments. Experts expect investments totaling $15 trillion over the next ten to 15 years.
This includes both corporate spending on AI and government spending on security, defense and infrastructure. “First, appropriate capacities are created in all areas, then a lot of money goes into maintenance and modernization,” explains Galler.
Companies should also benefit from this: they earn more and improve their profit margins - also through the use of AI. Therefore, returns on the stock markets are likely to continue to rise in the long term. Galler says: “In the end, when it comes to stocks, it always comes down to the company’s profitability.”
In the meantime, experts are expecting crises
However, the path to increasing corporate and stock market earnings is unlikely to be straight. In the meantime, setbacks are expected. The LTCMA study cites disappointments in the high expectations of the positive consequences of AI, increasing debt or increasing dissatisfaction among the population with the political situation as possible triggers for this.
Because of these risks, experts expect greater fluctuations on the capital markets. “However, the risks are taken into account in the forecasts and do not change our return forecasts,” says strategist Galler. Experience also shows: “Setbacks on the markets will be made up for in the short or at least medium term.”
Prospects for US stocks have improved significantly
Despite the expected earnings and price fluctuations and risks, the prospects for the leading index S&P 500 in particular have improved. Investors can therefore earn an average of seven percent per year over the next ten to 15 years in euros by investing in the US leading index through price gains and reinvested dividends. That would be 0.9 percentage points more than when we started a year ago.
According to Galler, this is primarily due to “the companies’ strong sales growth and the fact that many companies in the USA, with their strong competitive position, can achieve higher margins than companies in other countries.” For investors in the USA, an average return of 7.5 percent is expected for the S&P 500. For investors in the euro area, however, the expected slight depreciation of the dollar against the euro is likely to eat into returns.
The prospects for the Euro stock market have also improved again. According to the study, investors will earn an average of 7.6 percent annually over the next ten to 15 years by investing in the MSCI index for standard stocks from the euro area. For investors in the dollar area it is even 8.1 percent because of the exchange rate gains.
According to JP Morgan Asset Management's expectations, the prospects for stocks from the euro area are once again better than for US stocks. The main reasons: European companies pay more dividends and are valued lower than US companies.
Portfolio managers, economists and strategists have the highest expectations for Japanese stocks: Euro investors can expect returns of 8.6 percent. This is mainly due to the currency effect. “The yen is one of the most undervalued currencies,” says Galler.
Expectations for emerging markets are more cautious. Calculated in euros, the returns are on average 6.6 percent per year. This means they have worsened by more than half a percentage point.
This is because they are particularly highly valued after the rally of the past two years. The main reason for this is the rapid rise in prices of the semiconductor manufacturers Taiwan Semiconductors, Samsung Electronics and SK Hynix. They now have a weight of almost 30 percent in the MSCI Emerging Markets index.
Bond outlook is as good as it was 20 years ago
According to the study, the prospects for government and corporate bonds are better than they have been in 20 years. One reason for this is the starting position. Yields have risen again this year and in some cases have reached their highest level in over a decade and a half.
But there are also differences in the outlook for bonds: strategists expect returns of an average of 4.2 percent per year over the next ten to 15 years for government bonds denominated in euros, and significantly more for bonds from emerging markets and bonds from companies - especially from the USA.
Overall, experts assume that yields on the bond markets will remain high. This is due, among other things, to rising inflation, which goes hand in hand with economic growth. In the euro area, the inflation rate should average 2.2 percent in the long term and 2.4 percent in the USA.
The increasing indebtedness of states and companies is also increasing competition for capital. In the opinion of JP Morgan Asset Management, this should keep bond yields high and possibly even rise in the meantime. In the long term, however, bond prices are likely to increase somewhat again. This would then reduce the returns for beginners.
For gold, experts expect a yield of five percent per year
Far from the classic investments mentioned, in so-called alternative investments, the forecasts have changed in some opposite ways. When it comes to gold, the experts expect annual returns to remain largely unchanged in the long term due to price increases of five percent.
According to Galler, gold is particularly suitable as a hedge in view of rising national debt and higher inflation rates. In addition, the gold price develops largely independently of the topic of AI.
The prospects for hedge funds have improved significantly when it comes to alternative investments. The experts expect a long-term return of an average of 6.6 percent per year. Expectations have risen by more than one and a half percentage points. Among other things, the increased interest rates offer hedge funds additional potential.
The mechanics behind it: Hedge funds often bet on falling prices through so-called short sales. To do this, they borrow shares and sell them immediately in the hope of being able to buy them back cheaper before the return date. With increased interest rates, they can invest the money received from the sale more lucratively than before until they are repurchased.
For the first time, the experts are making forecasts for Bitcoin
Alternative investments also include cryptocurrencies such as Bitcoin. Due to the high demand from private customer business, the LTCMA is now providing a forecast for the first time.
According to this, investments in Bitcoin are likely to earn an average of ten percent per year against the dollar over the next ten to 15 years. However, the fluctuations are very high, at an average of 55 percent per year.
However, this forecast is subject to reservation. It is therefore quite possible that an investment in Bitcoin will result in a loss of over eleven percent on average in the long term - or even a profit of more than 16 percent.
