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QMA's Q2 Capital Market Assumptions
Global Economic Outlook:
We expect real economic growth in the developed economies to continue to moderate over the next decade, as it has for the last 30 years. Growth of the developed labor force is limited by domestic demographics, with no assumption for a significant offset from improved productivity growth. Inflation in developed markets, in contrast, is anticipated to increase modestly over the next 10 years, relative to the low rates of inflation observed since the onset of the global financial crisis of 2008. We expect real economic growth and inflation in emerging markets to advance at higher annualized rates. Younger populations and higher rates of return on capital in emerging markets are driving higher rates of nominal economic output compared to developed market peers.
Equities:
Our 10-year annualized nominal return forecast for global equities is 6.9%, compared to 7.9% at the end of 2018, which reflects richer valuations at the end of the first quarter coincident with global equities1 advancing 12.2% to open the year. Our long-term return forecast for US equities is somewhat lower, at 6.1%. Developed market equities outside the US are forecast at 8.3%, a differential largely accounted for by lower historical valuation ratios outside the US. Our long-run forecast for emerging market equities is 7.6%, with higher rates of nominal economic growth offset somewhat by comparably lower expected income returns than in developed markets and a negative
expected valuation adjustment.
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