Investors should expect a high inflation and low return environment over the next 10-15 years, according to JP Morgan.
In its 2022 Long-Term Capital Market Assumptions (LCTMAs) released this week – which highlights the average annual returns investors can expect for over 200 major asset classes over the next decade – the asset manager said that for “the first time in many years” it has raised long-term global inflation projections from 2.2 per cent to 2.4 per cent.
JP Morgan said the inflation coming out in the late stages of the COVID-19 pandemic has proved to be “a little stickier” for central banks than expected.
“However, in Australia, the cyclical impediments to creating strong inflation have resulted in marginally lower inflation expectations in this year’s forecasts,” the company said.
The research shows that the higher inflation numbers are impacting fixed income refunds and that investors should “broaden the tool kit” when looking into alternative assets.
Meanwhile, expected returns over the next decade remain low, with Australian investors specifically projected to return 4.0 per cent; no movement from last year.
JP Morgan said in its LCTMAs that investors must look beyond traditional asset markets to find higher returns.
JP Morgan Asset Management’s global multi-asset strategist, Patrik Schöwitz, said the global economy is experiencing a strong recovery after almost two years of the pandemic.
“While the economy has suffered limited scarring, policy choices have an enduring impact on the global economy and asset markets,” Mr Schöwitz said.
“This year, we raised long-term inflation projections for the first time in many years. Despite high inflation and low return expectations in public markets, we see plentiful opportunities for investors who are willing to expand opportunity sets beyond publicly traded assets and core markets.”
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