Last Updated: September 14, 2023 4:06 PM ET
First Published: September 14, 2023 2:55 pm ET
Three powerful dynamics in the global economy are expected to play a key role in investors’ multi-asset allocations over the next five years, according to a 132-page report from Rotterdam-based asset manager Robeco. The first is the potentially increased bargaining power of labour. Based on the report compiled by strategists Laurens Swinkels and Peter van der Welle on behalf of the multi-asset team at Robeco, the outcome of any tussle between businesses and their workers will probably be determined by wages in the sticky inflation environment that management manages. Has assets worth $194 billion. Second is the end of monetary policy…
Three powerful dynamics in the global economy are expected to play a key role in investors’ multi-asset allocations over the next five years, according to a 132-page report from Rotterdam-based asset manager Robeco.
The first is the potentially increased bargaining power of workers, with the outcome of any fights between businesses and their workers likely to be determined by wages in a sticky inflation environment, said strategists Laurens Swinkels and Peter van der Weele on behalf of Multi. Based on report compiled by. -Robeco’s wealth team, which manages $194 billion of assets. The second is the end of monetary-policy largesse and the ability for central banks to “horn in” with governments over appropriate levels of borrowing costs. Third is the rise of “multipolarity” as the US and China struggle for power.
Overall, this “triple power play” has already begun to unfold, according to the asset manager, shifting investors into a world of higher risk-free rates and lower expected equity risk premiums. Risk premium is a gauge of the relative value of a stock, which helps investors understand what their short-term profit could be if they take on additional risk buying equities or investing in a stock fund.
Robeco provided its forecasts for five-year, annualized, notional returns on a range of assets held by euro- and dollar-based investors – including developed and emerging market equities, bonds and cash.
The firm’s base-case scenario, which Robeco’s team refers to as “standstill,” calls for a mild recession in 2024, with consumer-price inflation in developed economies averaging around 2.5% toward 2029, and in the U.S. Real GDP averages 2.3% or below what the S&P 500 index SPX currently implies.
That benign growth outlook is expected to be accompanied by macroeconomic instability as well as a “tug of war” between central bankers reluctant to lower interest rates and governments in need of lower borrowing costs – meaning demand needs to be addressed. There is no adequate monetary policy. -Pull inflation.” According to Robeco, in such a scenario, developed market equities could underperform their emerging market counterparts and domestic bonds should offer higher returns than cash for dollar-denominated investors.
“Looking ahead, a key question is: Are we eyeing the beginning of a new bull market that will broaden and pave the way for another series of historic excess equity returns?” The Robeco team wrote in a report released Tuesday. “In our base case, we expect developed markets earnings growth to remain below current 5Y forward consensus estimates, which are high single-digit or still low double-digit for the US and Eurozone.
“The reason we are expecting a decline in profitability is linked to our broader macro theme, the triple power play. According to the report, equity may have to bear the brunt of the power game in geopolitics. Furthermore, efforts by global corporations to shift production to geopolitically favorable powers or nearby regions “will prove more costly and less efficient.” Additionally, “further pressure on margins will come from a slower response to previous policy rate hikes.”
Under Robeco’s bull-case scenario, early and rapid adoption of artificial intelligence across all sectors and industries would likely drive growth above trend and inflation back to central banks’ target. The result is “almost a Goldilocks scenario in which things are running neither too hot nor too cold,” central banks may take a break from tight policy, and both developed and emerging market equities may be able to come out with double digits. Are. Annual returns from 2024 to 2028.
The company’s bear-case scenario imagines a world in which mutual trust among the world’s superpowers hits rock bottom, governments are “in the hands” of central banks, and workers lose bargaining power in the service sector. Are. A “stagflationary environment is emerging, increasing the policy dilemma for central bankers” as inflation remains high at an average of 3.5% and growth for developed economies is only 0.5% annually. In that case, developed-market equities would yield an annual return of 2.25% for dollar-based investors over a four-year period, which would be less than the expected return on cash.
On Thursday, all three major US stock indexes DJIA SPX COMP finished higher as investors digested a batch of better-than-expected US data and continued expectations of no action by the Federal Reserve next week. It is believed that the authorities may leave their main policy rate target on Wednesday at a 22-year high of 5.25%-5%.
As investors continued to eye the possibility of a United Auto Workers strike, 2-BX:TMUBMUSD02Y and 10-year Treasury yields BX:TMUBMUSD10Y ended at one-week highs and the ICE US Dollar Index DXY jumped 0.6%. In a separate development earlier this week, Air Force Secretary Frank Kendall warned that China was preparing for a possible war with the US