JP Morgan Asset Management has published its 2020 Long-Term Capital Market Assumptions (LTCMAs), which outlines over some 100 pages the challenges that investors face in the current environment, but also some proposed solutions - such as for those still seeking income.
John Bilton, head of Global Multi-Asset Strategy, and one of the co-authors, noted that: "Our 2020 assumptions are being released against a backdrop of trade uncertainty between the world's economic superpowers and a recent reversal in the trajectory of global monetary policy. In an environment of very low bond yields, investors must reassess how to design the optimal portfolio as the trade-off is no longer between foregone risky asset returns and reduced portfolio risk, but is instead between a zero or even negative return in exchange for that risk reduction."
Karen Ward, chief market strategist EMEA - another of the co-authors along with Tim Lintern, global strategist, Multi-Asset Solutions, and Victoria Helvert, associate, European Equity Group - added: "Over the last year, the economic cycle matured even further, becoming the longest US expansion on record; our growth projections for the 10-15 year investment horizon remain relatively modest with aging populations a key headwind, while a technology-driven boost to productivity represents the main upside risk. Portfolio flexibility remains key for investors looking to manage cycle uncertainty, with those seeking higher returns continuing to be drawn to private markets and other alternatives as a both a diversifier and source of alpha."
Bright spots for investors include the fact that with a shrinking population and ongoing economic growth, China's GDP per capita continues to soar.
Germany and Japan are examples of countries with labour shortages that could benefit from increased productivity as technology is adopted, such as AI and robotics.
However, for those hoping for monetary policy to provide a solid base from which to expect increses in real inflation, the fact that governments have tended to follow wage restraint when considering public sector employees means that there is an ongoing risk of the latter undoing some of the effect of the former, Bilton and Ward noted.
To read the full research report, click on the pdf link below: