Equities will be the asset class of choice over the next 10 years, even as economic growth slows, according to the Barings global multi-asset team.
The team, which has produced its latest 10 year forecast, predicted there would be only moderate economic growth in the next decade.
Barings predicted the rate of growth in the next 10 years for the US and the UK would be 2.3 per cent and 2.2 per cent respectively.
The growth rates, which are lower than consensus, will be constrained by demographics, particularly the aging population in developed markets.
According to Barings, in the coming years investors should look to the equity market for returns. The group expect dividend yields to continue to grow and equity valuations to be pushed even higher.
“We believe that UK, Japanese and (to a lesser extent, given the increase in risk) emerging market equities should provide the best investment opportunity,” the report said.
In Japan the group thinks the positive effects of Abenomics, a series of reforms that began in 2012, will begin to materialise.
Japan will not “become a shareholder-driven market overnight,” but as the market becomes more European in nature this could “mark a big turnaround in profitability,” the multi-asset team said.
Elsewhere, emerging market equities are benefiting from a “good demographic profile,” which could offer investors a “modest premium” in the next decade.
Meanwhile, the US will be lacklustre in comparison. “With profit margins already at cyclical highs, US companies may see mild margin erosion as interest rates rise,” the group said.
As for the bond market, Barings says the next decade will be defined by the consequences of “extraordinary government action”. In light of this they think cash rates and bond yields will remain lower for longer.
