Citing signals of economic transition and diversified benefits, Amundi recommends a significant portfolio allocation to gold following its +30 per cent surge since 2023. Investor Strategy News
Australia’s biggest super funds disagree on what the new Your Future, Your Super performance test should look like, but they both think the consequences for failure should be just as weighty – and apply to everybody equally.
No scars, but still a Covid hangover
The economic aftermath of Covid-19 was never going to be as bad as it seemed at the time. But governments will be hooked on splashing cash.
“Economic scarring” was all anybody could talk about in the immediate aftermath of the first wave of Covid-19, and for good reason; it’s well understood that the effects of crises like this tend to linger as the collapse of businesses and job losses means years of lost productivity. But JPMorgan’s latest Long-Term Capital Markets Assumption report shows that this time really could be different.
“We don’t actually see any lasting scars in the economy,” Patrick Schowitz, J.P. Morgan global strategist in the multi-asset solutions team, told media on Wednesday (November 24). “We don’t see persistent high unemployment, we don’t see a massive wave of bankruptcies; the economy seems to have come out of this relatively unscathed in the sense that trend growth rates seem to be where they were, if not slightly better.”
It’s a far cry from the Global Financial Crisis, where economies were so damaged that they never actually made up the lost ground. But while the scars will fade, the policy response won’t. To Schowitz’s mind, governments are now hooked on spending; the genie is out of the bottle, and there’s no desire to force it back in.
“Having found a taste for it, governments will find it quite hard to clamp down on spending to the extent that they will reduce that debt mountain in a big hurry or any sort of short time frame. Partly as a result of that, we end up with average shorter interest rates across developed economies, which are obviously at record lows,” Schowitz said.
“We think that will be one area where central banks will find it difficult to raise interest rates very far without jeopardising debt markets…. and even when interest rates rise, given the inflation outlook is slightly higher as well, it’s very hard to see how the vast majority of the fixed income world is actually going to generate real returns.”
Equity portfolios will require “a better sector mix” and more exposure to technology, but in an “absolute long-run context” Schowitz has relatively low expectations for their returns in a challenge for public market pure beta returns and driving investors closer to the world of alternatives.
“A four per cent return is really not a great return, and will not be enough to meet the requirements of most investors; given that this is a public markets discussion, it very quickly leads you into thinking about where you can harvest extra returns, extra risk premia, active alpha. It very quickly gets you to a discussion of alternatives,” Schowitz said.
“That’s very different to what we saw after the last crisis. After the last crisis, our return expectation would have been much higher. Why? Because valuations were not as high. That’s something we struggle with across asset classes in public markets today. Valuations are quite elevated again, and sitting on the pure beta perspective is not going to deliver the returns that you need.”
Interestingly, developed market growth over the next ten to fifteen years will outpace their emerging markets counterparts, with growth forecasts in line with what has been seen in the previous ten to fifteen.
“There’s two key reasons; one is demographics. Population growth is slowing down, and that is a headwind to growth across any number of emerging market economies. It’s a widespread phenomenon that in developed markets manifested a long time ago,” Schowitz said.
“The other big driver for the EM aggregate, given the weight of China in the global economy, is that China is also converging towards developed market economies, and it’s only natural that China will continue to slow down in the next decade or so. It’s not a horror story that we’re painting here; it’s just natural that it will continue to slow down.”
