Amundi’s 2024 Capital Markets Assumptions, forecasting the next 10 years across 40 different asset classes, have just been released.

The 10-year expected returns are slightly lower compared with last year’s forecasts, in particular developed market equities, according to new forecasts for the next decade from Amundi, a European asset manager. 

After last year’s comeback, the long-term view on high quality bonds remains positive, the firm said in a statement. Emerging market debt, hedge funds and private debt are the asset classes offering the most appealing return potential with medium risk.

Among developed market equities, the US market should lag overall – 5.6 per cent annualized expected returns for the next 10 years – due to expensive valuations, while Pacific ex-Japan and European equities may offer better returns of around 6.5 per cent, the firm continued. Indian equities, emerging markets ex-China and private equity stand out as the asset classes with the highest return potential, above 7 per cent. Healthcare, IT, communications services, and financials are also expected to be the global sector winners.

Amundi’s 2024 Capital Market Assumptions offer investors updated forecasts across 40 asset classes, with the addition this year of emerging markets ex-China equity. The new macro assumptions factor in changes in energy transition trajectories and the impact of artificial intelligence (AI) on productivity growth. The new 10-year expected returns are the basis for strategic asset allocation that points toward important changes in risk-return expectations and the role of different asset classes in portfolio construction.

Diversification
Amundi suggested that portfolios will have to be more diversified to cope with higher expected volatility in risky assets and to enhance return potential. The firm sees fixed income as a key portfolio engine, in particular high-quality assets. Higher equity volatility will require investors to look for additional sources of diversification, such as emerging market debt.

Real and alternative assets will help enhance portfolio long-term risk-return profiles and deserve around 20 per cent allocation, Amundi said. Hedge funds and private debt are favored for investors who want moderate risk while private equity is for investors with a higher risk appetite. Infrastructure is a good diversifier that could benefit from significant investments aimed at climate mitigation and adaptation, the firm added.

“The next decade should see a change in the relative attractiveness of different asset classes. Bonds are the anchor and their renewed appeal extends to emerging markets. Emerging market equities should also be favored, in particular India. European equities should also regain some appeal,” Vincent Mortier, group CIO of Amundi, said. Other wealth managers also favor Indian equities.Willem Sels, global chief investment officer at HSBC Global Private Banking and Wealth, has overweight positions in India, Indonesia, South Korea and now also Japan. Shishir Baijal, chairman and managing director of Knight Frank India, also believes that India is increasingly recognised as an attractive investment destination for global and domestic investors, owing to its robust domestic consumption, long-term economic stability, and extensive infrastructural development. See more commentary here and here.

Growth
The next 10 years could see higher growth and lower inflation compared with the firm’s 2023 long-term forecasts, partly due to productivity gains from the adoption of AI.

Delays in climate policy will increase risks resulting in greater economic costs moving toward 2050, the firm said.

Emerging markets’ annual growth will be 2.3 per cent higher than developed markets on average over 2024 to 2033. This growth advantage will diminish over the two subsequent decades as the road to net zero appears more challenging for many emerging markets.

However, Amundi also sees some emerging market countries, such as Chile and Indonesia, benefitting from the transition, namely those rich in critical minerals.

A carbon tax would also have a significant impact on growth and inflation, particularly affecting emerging markets and low-income households.  A fair transition is at the heart of the case for carbon taxation, the firm added.