Modest long-term growth

Growth remains low by historical standards, according to J.P. Morgan Asset Management’s 2020 long-term assumptions.

Over the next 10 to 15 years, we see global growth averaging 2.3%, down 20 basis points (bps) from our 2019 assumptions. Our forecast for developed markets remained unchanged at 1.5%, but for emerging markets, we trimmed our forecast 35bps to 3.9%.
 

Our 10- to 15-year projections for global growth⁴

In our view, population aging is a key headwind to global growth while a technology-driven boost to productivity may help growth. In addition, inflation is set to fall short of most central bank targets, unless and until fiscal stimulus features more prominently in the policy toolkit.

Government bonds

An asset is generally considered as having relatively lower risk when it could exhibit lower or negative correlation to the general market and could help balance the risk profile of portfolios during times of stress.

Quality government bonds have been traditionally considered a type of lower risk assets in long-term portfolios with multiple assets.

Investors generally sacrifice potentially higher expected returns from risk assets in return for a more balanced risk profile. But this is changing as years of monetary easing and low inflation have left yields at ultra-low, or even negative levels.

Ultra-low or negative yields

Now, some developed market government bonds yield¹ zero or less. This could mean investors may have to pay for the relatively lower risks that these bonds could potentially offer.

Diversifying² across different types of assets, even among relatively lower risk assets, could help add resilience to portfolios over the long run. Other lower risk assets could include currencies like the US dollar, Japanese yen and Swiss franc, and alternative assets such as core real estate and infrastructure, depending on investors’ objectives and risk appetite.

Broader asset mix

Fixed income still plays a significant role in portfolios. Even in a low rate environment, opportunities for yield¹ could still be found within the same asset class, but this could require moving along the risk spectrum. Depending on investors’ objectives and risk appetite, credit could potentially be considered as investors seek to enhance portfolio returns for the long term.

Equities could continue to play a major role in long-term portfolios with modestly improved valuations in both developed and emerging markets. The return of capital to shareholders in the form of dividends and buybacks continues to be a crucial component.

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Conclusion

Generally, no single asset class can stand out as an all-time outperformer. As winners rotate, it is crucial to have a diversified² portfolio so that you won’t miss out on the opportunities to capture the upside potential of different asset classes. Keeping a view over the full cycle is always important, but disciplined execution of an investment strategy is also a clear competitive advantage.

1. Yield is not guaranteed. Positive yield does not imply positive return.
2. Diversification does not guarantee investment return and does not eliminate the risk of loss.
3. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions.
4. Source: J.P. Morgan Asset Management; estimates as of 30.09.2019. Emerging markets aggregate derived from a nine-country sample.  

Investment involves risk. Not all investments are suitable for all investors. Past performance is not a reliable indicator of current and future results. Please refer to the offering document(s) for details, including the risk factors. Investors should consult professional advice before investing. Investments are not similar to or comparable with fixed deposits. The opinions and views expressed here are as of the date of this publication, which are subject to change and are not to be taken as or construed as investment advice. Estimates, assumptions and projections are provided for information only and may or may not come to pass. This document has not been reviewed by the SFC. Issued by JPMorgan Funds (Asia) Limited.