Capital Group bets on 20-year stocks and bonds
2023.03.03 03:06
Capital Group bets on 20-year stocks and bonds
By Kristina Sobol
Budrigannews.com – According to Capital Group, which is based in the United States and is one of the largest investment management firms in the world and manages approximately $2.2 trillion in equity and fixed income assets, the blowout that the markets endured last year made it more bullish on long-term returns on stocks and bonds.
“Our 20-year return assumptions are higher across the board after a tumultuous year that saw double-digit declines in most equity and fixed income asset classes,” a committee of analysts and portfolio managers stated in a report.
They anticipate that U.S. stocks will return 7.2% annually over the next 20 years, up from 5.8% at the end of 2021. From 1.6% in 2021, return expectations for U.S. government bonds with maturities of five to ten years more than doubled to 3.4%.
Last year, global central banks aggressively tightened monetary policy to combat inflation, raising interest rates and fueling fears of a global recession. This caused financial markets to suffer.
According to Capital Group, although the path of inflation will likely continue to be turbulent, the U.S. Federal Reserve is expected to maintain its 2% inflation target.
In an interview with Reuters, Capital Group’s Head of Global Asset Class Services Maddi Dessner stated, “We do expect the Fed to be successful over time in getting inflation under control.”
“We think that there will be additional volatility around that inflation number,” she stated. “As the Fed is removing accommodation, and they may need to do that even more quickly than we expect,” she added.
The long-term forecast for returns from emerging markets stocks was 6%, but now it is expected that the U.S. dollar will depreciate to 9%, the highest return among asset classes.
With returns on debt in local currencies compensating for potential defaults on U.S. dollar debt, emerging markets are seen as offering the most attractive returns on debt as well, at 7.6%.
Assets from emerging markets saw higher returns than China, where estimates for real economic growth for the next 20 years were lowered to 3 percent from 4 percent.
“concerns about the stability of policies affecting private-sector investment, and a slow property market” were among the factors cited in the report for that forecast.
