J.P. Morgan Asset Management recently unveiled its 2024 Long-Term Capital Market Assumptions (LTCMAs), offering investors a comprehensive outlook for the financial landscape over the next 10 to 15 years.
The projected annual return for a conventional USD 60/40 stock-bond portfolio remains appealing at 7 percent. This is according to the 28th edition of the LTCMAs.
Despite the optimistic forecast, the financial services firm still pointed out how this outlook can be improved. Their report suggested a 25 percent allocation to alternative assets to increase returns by 60 basis points. Doing so can also improve the Sharpe ratio, a metric that measures risk-adjusted relative returns, by 12 percent.
Overall, this positive long-term outlook is a result of increased productivity driven by automation and artificial intelligence (AI). The potential investment opportunities offered by the energy transition and emerging technologies also contribute to this forecast.
The potential in the Middle East
As the LTCMAs highlight the ongoing energy transition as a significant investment opportunity, the Middle East region could notably emerge as a crucial player.
Mohammed Al Taani previously stated that the “Arab World will witness $700 billion investment in renewable energy transition between 2020 and 2050 with a target to generate more than 70 gigawatts of power from renewable energy by 2050.” He is the secretary-general of the Arab Renewable Energy Commission.
Simultaneously, the International Renewable Energy Agency revealed that the region has the potential to source nearly 26 percent of its total primary energy supply from renewables by 2050. Moreover, the renewable share in the power sector could potentially reach 53 percent.
Meanwhile, in terms of AI investments, the region is also at the forefront of embracing this game-changing technology. AI spending in the Middle East and Africa (MEA) could hit $3 billion this year. This is according to figures from the Worldwide Artificial Intelligence Spending Guide by the International Data Corporation (IDC).
The MEA region is also expected to experience the fastest growth rate worldwide in the coming years. IDC forecasts that AI spending in MEA could surge at a compound annual growth rate (CAGR) of 29.7 percent from 2022 to 2026. This means figures could hit $6.4 billion in 2026.
Navigating economic transformation
J.P. Morgan’s Long-Term Capital Market Assumptions report is based on quantitative and qualitative inputs and insights from over 60 experts at J.P. Morgan Asset and Wealth Management.
John Bilton, head of Global Multi-Asset Strategy at J.P. Morgan Asset Management, emphasized the global economic transition following the pandemic and geopolitical tensions.
“This transition requires investors to build robust portfolios to meet these challenges by extending out of cash and benchmarks to harvest better returns, and expanding opportunity sets into alternatives and through greater international exposure to enhance returns and diversification,” he shared.
Meanwhile, Grace Peters, global head of Investment Strategy at J.P. Morgan Private Bank, said, “You’ll often hear investors wish for a crystal ball during unpredictable markets. The LTCMAs provide a roadmap to steer through those moments and support our client’s long-term investment goals.”
“This year, the findings tell a strong story for clients on the power of diversification in an ever-changing world, answering some of the key questions on everyone’s mind right now,” she further stated.
“The process of building goal-aligned portfolios for our clients is powered by the institutional firepower that the LTCMAs provide – whether they are just starting on their journey or planning for future generations,” concluded Peters.
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