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1、 FOR INSTITUTIONAL/WHOLESALE/PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY NOT FOR RETAIL USE OR DISTRIBUTION27th annual edition2023 Long-Term Capital Market AssumptionsTime-tested projections to build stronger portfoliosJ.P.Morgan Asset Management 3Foreword By nearly any measure,the early 2020s
2、 have been a period of extraordinary challenge.The worst pandemic in over a century triggered a short but severe recession and enduring supply disruptions.A generous fiscal response,facilitated by unusually easy monetary policy,fueled the highest levels of inflation since the early 1980s.Russias bru
3、tal invasion of Ukraine created a devastating humanitarian crisis and further supply disruptions and inflation.Central banks,led by the Federal Reserve,then aggressively tightened policy in response to inflation.And in 2022,financial markets around the world and across all major asset classes incurr
4、ed sharp losses.Amid these cascading crises,many of the past years losses have created significant opportunities.Against this backdrop,were pleased to launch the 2023 edition of J.P.Morgan Asset Managements Long-Term Capital Market Assumptions(LTCMAs).1 In our 27th year of producing capital market e
5、stimates,we incorporate more than 200 asset and strategy classes;our return assumptions are available in 17 base currencies.Over the years,many investors and advisors have come to depend on our assumptions to inform their strategic asset allocation,build more resilient portfolios and establish reaso
6、nable expectations for risks and returns over a 10-to 15-year time frame.Additionally,with each passing year,we aim to recalibrate our long-run approximations,incorporating new information presented by markets,policymakers and economic data.We formulate our LTCMAs as part of a proprietary process.It
7、 draws on quantitative and qualitative inputs as well as insights from experts across J.P.Morgan Asset Management.Our own multi-asset investment approach relies heavily on our LTCMAs:The assumptions form a critical foundation of our framework for designing,building and analyzing solutions aligned wi
8、th our clients specific investment needs.This edition of our assumptions is very different from last years.Our return forecasts move significantly higher across many asset classes.Lower valuations,higher yields and the accompanying unwind of many policy dislocations mean that markets today offer the
9、 best long-term return potential in more than a decade.The insights presented here aim to help clients navigate changing market dynamics and identify promising investment opportunities.We hope our analysis helps guide your long-term strategic perspective and active asset allocation.On behalf of J.P.
10、Morgan Asset Management,we look forward to working with you to make the best use of our assumptions in setting,and achieving,your own investment goals.Thank you for your continued trust and confidence.As always,we welcome your feedback.George GatchChief Executive Officer Asset Management1 Key asset
11、classes in USD,GBP and EUR are presented at the back of this book;all others are available via our website or from your J.P.Morgan representative.J.P.Morgan Asset Management 5Contents 3Foreword6Executive summary Back to basics19Macroeconomic assumptions Inching forward:Lingering inflation,moderate g
12、rowthThematic articles30The future of globalizationGlobalization will evolve but not unravel41Demographics and destiny The challenges and opportunities of a 10 billion person planetAssumption articles56Currency exchange rate assumptions Rich U.S.dollar headed toward fairvalue62Fixed income assumptio
13、ns Bonds are back after the biggest-ever drawdown68Equity assumptions Better starting point,higher forecast returns 76Alternative asset assumptionsSourcing uncorrelated returns in a period of rising market risk97Volatility and correlation assumptions Fixed income volatility rises;its diversification
14、 benefits weaken104Portfolio implications Striking a balance:Strategic patience,tactical flexibilityAssumption matrices112U.S.dollar 2023 Estimates and correlations114Euro 2023 Estimates and correlations116Sterling 2023 Estimates and correlationsAppendix120Acknowledgments 122Glossary 6 2023 Long-Ter
15、m Capital Market AssumptionsExecutive summaryBack to basicsAuthorJohn Bilton,CFAHead of Global Multi-Asset StrategyMulti-Asset SolutionsMichael AkinyeleGlobal Strategist Multi-Asset SolutionsMonica IssarGlobal Head of Wealth Management Multi-Asset and Portfolio SolutionsIn brief Our 2023 return outl
16、ook stands in stark contrast to last years.Across markets,the unwind of dislocations,notably negative policy rates and large central bank balance sheets,has been abrupt.Few asset classes emerged unscathed.But our LTCMAs deliver a brighter message:Lower valuations and higher yields mean that markets
17、today offer the best potential long-term returns since 2010.A recession or at least several quarters of subtrend growth lie immediately ahead.Still,our forecast of global trend growth over our 10-to 15-year investment horizon is unchanged at 2.20%.Despite global inflation today running at 7.30%,we r
18、aise our long-term global inflation forecast just 20 basis points,to 2.60%,and expect todays elevated inflation to subside over the next two years.After policy rates normalized swiftly,bonds no longer look like serial losers.Real return forecasts for most sovereign bonds move back into positive terr
19、itory,leaving bonds once again a plausible source of income as well as diversification.Higher riskless rates also translate to improved credit return forecasts.Projected equity returns rise sharply.Margins will likely recede from todays levels but not reverse completely to their long-term average,an
20、d valuations present an attractive entry point.Alternatives,meanwhile,still offer appealing diversification benefits.With the U.S.dollar more overvalued than at any time since the 1980s,the FX translation will be a significant component of forecast returns.Many secular themes affecting our outlook(d
21、emographics,globalization patterns,etc.)will demand higher capex paradoxically coming just as the abundance of cheap capital of the last decade is reversing.As financial markets are called upon to efficiently allocate scarce capital,the result may be more idiosyncratic returns and lower correlations
22、 within indices.The turmoil of 2022 has brought asset return forecasts close to long-term equilibrium;the 60/40 can once again form the bedrock for portfolios,with alternatives offering alpha,inflation protection and diversification.Once todays market turbulence clears,investors will have more scope
23、 to achieve long-term portfolio return objectives.J.P.Morgan Asset Management 7Lower valuations and higher yields mean that asset markets today offer the best long-term returns in more than a decade.It took a painful slump in stock and bond markets to get here,the worst of which may not yet be over.
24、Still,the turmoil of 2022 might be considered a cathartic moment,revitalizing the portfolio toolkit and creating attractive investment opportunities in the years ahead.In the near term,investors face a challenging time,as a recession or at least several quarters of subtrend growth lie immediately ah
25、ead.Nevertheless,our assessment of long-term trend growth is only marginally below last years.We expect todays inflationary surge to eventually subside to a rate only slightly above our previous estimates.Our forecast annual return for a USD 60/40 stock-bond portfolio over the next 1015 years leaps
26、from 4.30%last year to 7.20%.Over the last 25 years,the rolling 10-year return for this portfolio has averaged 6.10%.But that statistic bears some scrutiny.The secular decline in bond yields over this period1 provided a tailwind of about 50 basis points(bps)per year(Exhibit 1A).Without that tailwind
27、 which we do not expect to recur in the coming decade the fair historical comparison for a rolling 10-year USD 60/40 portfolio return is closer to 5.60%.1 U.S.10-year yields followed a path of secular decline from 15.84%in 1981 to a low of 0.53%in 2020.Source:Bloomberg.2 Allowing for a 16%drawdown i
28、n a 60/40 portfolio this year,and assuming a linear 7.2%60/40 return,a balanced portfolio recovers in approximately three years.2022 saw drawdowns across asset classes,with international investors also hit hard by a soaring dollar(Exhibit 1B).Today,however,opportunities for long-term investors with
29、capital to deploy are the best weve seen since 2010.2 Meanwhile,we would remind those shouldering losses from the last year that investors able to avoid selling during drops tend to be rewarded in the longer run,2 and that the sharpest gains are often banked early in the cycle as markets first turn.
30、Our title this year Back to Basics captures our belief that after a year of turmoil,the core principles of investing still hold firm.Once again,the 60/40 can form the bedrock of portfolios,while alternatives can offer alpha,inflation protection and diversification.Meanwhile,the end of free money,gre
31、ater two-way risk in inflation and policy,and increased return dispersion across assets also give active managers more to swing for.The past year has been undoubtedly challenging,but the amortization of the sharp moves in valuations and yields has effectively removed many of the cyclical headwinds t
32、hat faced a wide range of asset classes last year.Given that our forecasts this year are in many cases close to our estimate of long-run equilibrium returns,investors could view the volatility of 2022 as bringing market pricing“back to par,”enabling investors to focus on achieving long-term portfoli
33、o return objectives with renewed confidence.Over the last 25 years,declining bond yields provided a consistent tailwind to 60/40 returnsThe recent sell-off in both fixed income and equity markets has depressed a balanced portfolioExhibit 1A:Contribution of secular decline in bond yields to USD 60/40
34、 returnsExhibit 1B:Selected asset returns from September 30,2021,toSeptember 30,2022,including FX impact for USD investor-2%0%2%4%6%8%10%07 08 09 10 11121314 15 161718 19 20 21Return contribution from yield changeOthersRolling 10-yr 60/40 portfolio return(%p.a.)Local currency performanceFX impactPer
35、formance(USD)-17.3-8.3-15.1-20.3-28.1-20.4-17.6-14.6-14.13.8-15.4-23.1-15.4-9.4-17.1-40%-30%-20%-10%0%10%Euro areaequitiesJapaneseequitiesEuropeanhigh yieldChinese A-shareequitiesEmergingmarket equitiesGlobal AggregatebondsU.S.largecap equitiesU.S.AggregatebondsU.S.highyieldUK equitiesSource:Bloombe
36、rg,Haver Analytics,J.P.Morgan Asset Management;data as of September 30,2022.Back to basics8 2023 Long-Term Capital Market AssumptionsA bumpy road now a better return outlook3 To keep global warming to no more than 1.5C as called for in the Paris Agreement emissions need to be reduced by 45%by 2030 a
37、nd reach net zero by 2050.Source:United Nations.Even as long-term return projections improve,many investors will prefer to see at least some of the near-term issues recede notably,elevated inflation before committing capital to asset markets.We expect inflation to cool over the next couple of years,
38、and project only modestly higher equilibrium inflation rates over the next decade.Still,the factors that drove the surge in inflation influence our long-term outlook.Scarcity of key goods,fragility in local supply chains,tight labor markets and a tense geopolitical backdrop(laid bare by Russias inva
39、sion of Ukraine)all led to upside pressure on prices.Addressing these vulnerabilities as well as achieving net-zero3 carbon emissions and planning for ongoing global population growth will demand investment.Paradoxically,this demand for capital investment comes just as central banks are fighting inf
40、lation vigorously and in so doing ending a decade of ultra-easy policy.Put another way,capital will become scarcer just as structural demand for investment is increasing.To be clear,by any reasonable measure the cost of capital will remain subdued.But the world of easy policy and abundant capital,wh
41、ich drove broad-based asset appreciation in the 2010s,has been replaced by a world where capital is rationed via the financial markets.Investors will probably find that this creates an environment where fundamentals matter more and the dispersion of returns within an index widens.It may also lead to
42、 meaningful changes to secular winners and losers in equity markets:With capital becoming scarce,those firms that simply grew their balance sheets on cheap cash and the promise of future growth or profits will fall from favor,while those able to consistently generate cash will be rewarded.Both the m
43、emory and the initial impact of the pandemic have faded,but the effects on supply chains linger.The war in Ukraine and ongoing COVID-19-related restrictions in parts of Asia serve to highlight persistent supply-side vulnerability.The combination of fiscal stimulus in response to the pandemic,and the
44、 wave of optimism that came as societies reopened,caused a surge in demand.Fragile supply chains were unable to cope,and the result has been a widespread surge in inflation.As a result,the drawn-out pain we expected bondholders to suffer over several years was compressed into several months(Exhibit
45、2).For equity holders,central banks sharp policy pivot,from supporting nominal growth at all costs to depressing inflation at all costs,damaged otherwise resilient corporate revenues and earnings:At the time of writing,we are on the cusp of an earnings downgrade cycle likely to play out over the nex
46、t 12 months.Policy tightening should finally kill off inflation,but the cost might well be a swift end to the current business cycle.Across markets,the unwind of dislocations,most notably negative policy rates and large central bank balance sheets,has been abrupt.Few asset classes,with the exception
47、 of some real assets,have emerged unscathed.We have seen a sharp repricing of global bond yields higher to levels not seen in over a decadeExhibit 2:Global bond yield and stock of negative yielding debt,2009-20220.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%0%5%10%15%20%25%30%35%40%09 516171819 20
48、21%of negative yielding debtIndex yield to maturity(RHS)Source:Bloomberg,J.P.Morgan Asset Management;data as of September 30,2022.Today,bonds no longer look like serial losers.Equities remain cyclically sensitive,but while margins still look high,valuations are not,and stocks are already at an attra
49、ctive long-term entry point.Real assets and private markets continue to appear broadly supported and well geared to many important secular investment themes.The most important shift from last year is that real return forecasts for assets right across the risk spectrum are positive once again.For the
50、 first time in years,investors have a complete toolkit at their disposal.Executive summaryJ.P.Morgan Asset Management 9Macroeconomic outlook secular trends little affected by cyclical pressures4 EM economies grow at a faster rate than DM economies,so over a longer period higher growth EM regions gra
51、dually contribute a greater share of global growth.5 As of September 2022.Source:Bloomberg,Datastream,Haver Analytics,J.P.Morgan Asset Management.We expect a period of subtrend global growth to extend through 2023,with some regions falling into recession.But despite the near-term cyclical challenges
52、,our forecasts for long-run trend global growth over the next decade or so are unchanged at 2.20%,largely as a result of differential growth rates of emerging and developed regions gradually shifting the mix of global growth.4 Our U.S.and eurozone forecasts dip by 10bps,to 1.60%and 1.10%,respectivel
53、y,and we make cuts of 20bps,to 4.00%,for China and 30bps,to 5.70%,for India(Exhibit 3).The mix of real growth and inflation slightly worsens at a global level,but todays burst of inflation is set to cool over the longer runExhibit 3:Evolution of global trend growth and inflation projections Global r
54、eal GDPGlobal inflationInflation proportion of global nominal growth(RHS)47%48%49%50%51%52%53%54%55%0.0%1.0%2.0%3.0%4.0%5.0%6.0%200182019 2020 20212022 2023Source:J.P.Morgan Asset Management;data as of October 2022.Productivity growth once again disappointed over 2022 it continues to be a
55、n elusive topside risk to our growth projections.If we are right that pursuing net-zero carbon emissions and addressing supply chain fragility spark a pickup in capex,then there may be scope for productivity to improve.After all,capital deepening tends to lead to a rise in total factor productivity.
56、Still,it remains unclear how much of any lift in capex will boost productive assets or labor skills.For this reason,we remain circumspect on building further productivity gains into our Long-Term Capital Market Assumptions(LTCMAs).Some readers may be surprised to see our inflation forecasts move onl
57、y modestly higher:up 30bps,to 2.10%,across developed economies and up 10bps,to 3.40%,across emerging markets,pushing projected global inflation up 20bps,to 2.60%.With prevailing global inflation5 of 7.30%as of September 30,2022,our faith that inflation will cool to levels close to central bank targe
58、ts,on average,may seem optimistic.Nonetheless,we see few signs that consumers expect long-term inflation will rise uncontrollably and little evidence signaling tolerance of inflation by central banks.To be sure,risks to inflation are considerably more two-sided today,possibly pointing to more volati
59、lity in inflation in the years ahead.As we discuss in our macroeconomics section,the longer-term disinflationary forces of technology adoption and globalization may have slowed,but they have not disappeared.Meanwhile,central banks have clearly rediscovered their inflation-fighting zeal,with renewed
60、commitment to achieving inflation targets over the next two to three years.Back to basics10 2023 Long-Term Capital Market AssumptionsGlobalization evolving,not unraveling Inflation hawks often argue that“deglobalization”is pushing inflation higher over the long term.Certainly,the world today feels a
61、 more dangerous place than it has since the end of the Cold War,as geopolitical tension indices such as the Federal Reserves(Feds)Geopolitical Risk Index(GPR)underscore(Exhibit 4A).While trading blocs may become more regionally focused,we think globalization will evolve but not unravel.For the time
62、being,we are probably past“peak globalization,”at least with regard to goods trade.Still,in the years ahead,we expect trade to run roughly in line with GDP growth(Exhibit 4B)but to focus more on services and labor,and less on finished goods.While the emergence of rival trading blocs increases right-
63、tail risks to inflation particularly as rival blocs compete for scarce commodities globalization of services and labor may be a mitigating disinflationary force.A more polarized world,with a renewed emphasis on trade in services and labor,will require meaningful capex.But not all capex results in be
64、tter productivity.If capex is deployed simply to create contingency to an already optimal supply chain,it is unlikely to lead to higher productivity.By contrast,where capex strengthens resilience,improves efficiency for regional industry and deepens labor skills,the impact on long-term potential gro
65、wth trends may be meaningful.6 R*(R-star)is the real short-term interest rate expected to prevail when an economy is at full strength and inflation is stable.Source:New York Fed.Fixed income and FX bonds normalize,dollar still overvaluedAs our inflation forecasts move slightly higher,our forecast of
66、 cycle-neutral cash rates rises by 20bps30bps across developed markets.To be clear,our forecast rates represent the average cash rate we expect over the next 1015 years,not the terminal rate from the current cycle or the economic equilibrium rate(R*).6 This year,our USD and EUR cash return forecasts
67、 increase significantly,to 2.40%and 1.30%,respectively.For the first time since the global financial crisis(GFC),prevailing interest rates in most currencies sit at or above the cycle-neutral rate.This implies that the normalization of rates is no longer a drag on average returns and may even be a p
68、ositive contributor.The impact is minimal in cash but meaningful for longer-duration bonds.For U.S.10-year bonds,the combination of a slightly higher cash assumption with a slightly flatter curve pushes the cycle-neutral yield up 20bps,to 3.20%.Much higher starting yields push our return forecast up
69、 by 160bps,to 4.00%.In short,over the last year rates normalized swiftly and painfully.Excepting Japan,real return forecasts across G4 sovereign bonds shift back into positive territory(Exhibit 5),leaving bonds once again a plausible source of income as well as diversification.Global geopolitical ri
70、sk is exhibiting more volatility after a brief lull at the turn of the decadeGrowth in global trade is likely to continue tracking GDPgrowthExhibit 4A:The Feds Geopolitical Risk Index(GPR)shows elevatedtensionExhibit 4B:Patterns of global activity and global trade growth over the last 40 years050100
71、0350720998U.S.bombsIraq2001 9/112003Iraq invasion2014 RussiaannexesCrimea2016(June)Brexit(November)Trump elected2019COVID-19outbreak2022RussiainvadesUkraineGlobal GDPGlobal trade0%1%2%3%4%5%6%7%8%9%84889296000408121620Source:Federal Reserve,IFR,Measuring Geopolitical
72、 Risk Dairo Caldara and Matteo Iacoviello,J.P.Morgan Asset Management;data as of June 2022.Executive summaryJ.P.Morgan Asset Management 11Normalization of rates is no longer a drag on average returns in most marketsExhibit 5:Building-block fixed income return projections for G4 countriesUSDGBPEURJPY
73、Cycle-neutral average yieldsReturnCycle-neutral average yieldsReturnCycle-neutral average yieldsReturnCycle-neutral average yieldsReturnInflation2.6%2.4%1.8%0.9%Cash2.3%2.4%2.2%2.2%1.4%1.3%0.5%0.4%10-year bond3.2%4.0%2.6%3.8%2.2%3.0%1.0%0.6%Long maturity3.5%4.2%2.7%4.4%2.5%3.6%1.0%0.7%Investment gra
74、de credit4.7%5.5%4.3%5.7%3.2%3.6%1.3%1.1%High yield7.7%6.8%5.9%5.7%Emerging market debt*6.9%7.1%Source:J.P.Morgan Asset Management;estimates as of September 30,2022.Long-maturity government bond index:Citi EMU GBI 15+yr EUR;Citi Japan GBI JPY;FTSE UK Gilts Under 15+yr GBP and Bloomberg U.S.Treasury
75、20+yr USD.High yield:Bloomberg US High Yield 2%Issuer Cap USD and Bloomberg Pan-European High Yield EUR.Emerging market debt:J.P.Morgan EMBI Global Diversified Composite.Cycle-neutral:the average yield we expect after normalization.*Emerging market local currency debt.While dislocations have reset q
76、uickly across large parts of the sovereign bond market,the same cannot be said for the currency market.Inevitably,rapid policy action in one asset market(interest rates)has pushed others(currencies)further from equilibrium.Today,the U.S.dollar is more overvalued in nominal terms than at any time sin
77、ce the 1980s,and in real terms since 2002.Any investor making a strategic allocation decision across global asset markets today must carefully scrutinize the FX translation,as it will be a meaningful component of forecast returns.An impending period of subtrend growth may continue to support the gre
78、enback,but over our full forecast horizon we expect dollar valuations to recede particularly as large but slow-moving blocs of international capital(including insurers and pension funds)can now find the yield in their domestic markets to match their liabilities.Over time,this could start to reduce c
79、apital flows toward U.S.assets,in turn removing some support for the dollar.For some years,return forecasts for credit suggested it was a bright spot,not only in fixed income but across asset markets.While the drawdown in credit this year has been brutal,losses were mostly driven by the jump in risk
80、less rates.True,spreads widened across the board,but a combination of light supply,solid corporate balance sheets and a limited need for refinancing meant credit spreads outperformed equities.Prevailing spreads in both U.S.investment grade(IG)and high yield(HY)are near our equilibrium spread forecas
81、ts of 160bps and 480bps,respectively,leading to return forecasts up 270bps,to 5.50%,for U.S.IG and up 290bps,to 6.80%,for U.S.HY.Back to basics12 2023 Long-Term Capital Market AssumptionsA feature of the last decade that we do not expect to reverse is the drift in credit index ratings:down in qualit
82、y in IG and up in quality in HY.Triple Bs account for around half of the IG index today,and double Bs are more than half of the HY index(Exhibit 6A).The drift in rating quality might imply a secular spread compression between IG and HY.However,high demand for IG paper,portfolio de-risking and liabil
83、ity hedging likely keep equilibrium spreads near historical averages despite the concentration of BBBs.Meanwhile,in HY we expect default losses to be stable with a slightly higher level of defaults than lately but with better recovery rates which serves to keep our long-term HY spread forecast uncha
84、nged from last year.Emerging market debt(EMD)spreads have also widened meaningfully this year,but once again,after adjusting for rating drift,we keep our equilibrium spread assumption unchanged,at 400bps for emerging market(EM)corporate debt and 380bps for EM sovereign debt.This translates to return
85、 forecasts up 200bps,to 7.00%,for EMD corporates and up 190bps,to 7.10%,for EMD sovereigns.EMD remains on top in return terms,across extended credit especially if adjusted for quality.But the trade-off is in liquidity,which can skew risk-adjusted returns lower in weak markets(Exhibit 6B).Over the la
86、st decade,quality ratings across credit indices have changed markedlyExhibit 6A:Trend in BBBs in IG credit and BBs in HY credit in the last 25 years Exhibit 6B:Return-to-risk ratios focused on left-tail risk%of BBB in U.S.IG Index%of BB in U.S.HY Index30%35%40%45%50%55%60%9799010305 07091
87、Return over normal dist.CVaR 95%Return over historical CVaR 95%overestimation of return-to-risk*(RHS)0%4%8%12%16%0.00.20.40.60.8U.S.IntermediateTreasuriesU.S.inv gradecorporatebondsU.S.highyield bondsEmergingmarketssovereign debtSource:Bloomberg,J.P.Morgan Asset Management;data as of September 30,20
88、22.*Percentage difference between return-to-CVaR based on normal assumption and return-to-CVaR based on historical experience.Both CVaR measures are computed at 95%confidence level.See Volatility assumptions section for details.Executive summaryJ.P.Morgan Asset Management 13Toward a 10 billion perso
89、n planetEmerging market nations,and specifically many frontier market nations,are potential beneficiaries of the significant growth in global population projected over the next 2530 years.While developed nations face the challenge of aging workforces,some of the emerging world parts of the Middle Ea
90、st and South Asia,alongside much of Africa have young,fast-growing workforces.The challenge is that much of the worlds capital and productive assets are in places where the workforce is shrinking(Exhibit 7).Regions with a growing labor supply do not possess the most productive capital assets Exhibit
91、 7:Top 10 most populous nations2020205021001ChinaIndiaIndia2IndiaChinaChina3United StatesNigeriaNigeria*4IndonesiaUnited StatesDR Congo*5PakistanPakistanPakistan*6BrazilIndonesiaEthiopia*7NigeriaDR CongoIndonesia*8BangladeshBrazilTanzania*9RussiaEthiopiaBrazil*10MexicoBangladeshEgypt*Share of world
92、GDP in PPP(2020,%)534833Source:Haver Analytics,IMF,U.S.Census Bureau,J.P.Morgan Asset Management;data as of September 30,2022.*New countries in top-10 most populous by end of 21st centuryGiven the higher cost of capital,it will be key for these younger nations to have the right macro and micro polic
93、ies in place to attract the capital needed to convert their favorable demographics and increasing labor force into sustained economic growth.Today,the economic effect of reinforcing supply chains in developed regions through local sourcing may dominate longer-term demographic developments.But as glo
94、balization shifts from goods toward services and labor,we see potential for unlocking this potential workforce and,in time,a new,fast-growing consumer bloc.7 To keep global warming to no more than 1.5C as called for in the Paris Agreement emissions need to be reduced by 45%by 2030 and reach net zero
95、 by 2050.Source:United Nations.However,given the strain further population growth will place on global resources(energy,food and ecosystems),together with momentum toward net-zero,7 thoughtful and substantial investment will be needed.While private capital,infrastructure and new asset classes like t
96、imberland are the most obvious beneficiaries of this trend,public market sectors such as communications,technology,renewable energy and consumer goods also stand to benefit.Capex needs rising just as capital getsscarcerPopulation growth and the need to shore up supply chain frailties point to a cape
97、x boom ahead.Financial markets,for a decade supported by abundant capital that lifted all assets valuations,will once more have to fulfill their primary social and economic function of allocating scarce capital to where the return outlook is most promising.This will be a significant shift,its effect
98、s felt across businesses,economies and markets.In the world of investing,we think this shift will,at the margin,prove helpful for active investing styles.The low inflation and easy policy of the 2010s have given way to a backdrop of two-sided inflation risks and greater policy uncertainty.Ahead,we a
99、nticipate an environment where asset markets are driven less by central bank support(a headwind for active alpha)and more by allocating scarce capital to long-run economic trends(a tailwind for active alpha).While the challenge of selecting the right manager persists,we believe that the potential fo
100、r active alpha is improving at the margin.Equity valuation now a tailwind,margins still a headwindThe asset market most commonly associated with active investing decisions is equities.Last year,global equities were undeniably expensive and trading at what appeared to be unsustainable margin levels.T
101、he bear market of 2022 has swung valuations from being a headwind to a tailwind in most regions.But despite rising input and labor costs,corporate margins remain extended,as companies in some sectors(autos,semiconductors,etc.)have raised prices for the first time in several years.Back to basics14 20
102、23 Long-Term Capital Market AssumptionsAs margins likely recede,they create a headwind to equity returns.Still,we do not expect margins to reverse completely to their long-term average.It is difficult to pinpoint equilibrium margins over long periods of time due to changes in sector mix,corporate fi
103、nance rules and company capital structures.Taking those changes into account,we think equilibrium margins over the LTCMA horizon will be somewhere around the pre-COVID-19 peak of 9.5%rather than the 7.5%level that would be the unadjusted 25-year average.The prevalence of capital-light balance sheets
104、,the pricing power of branded corporates and a management focus on profitability all suggest the potential for higher equilibrium margins.When we project that margins will revert to their pre-pandemic levels,we tacitly acknowledge that the capital share of the economy is unlikely to expand further.E
105、qually,in choosing not to anchor our forecast on the 25-year average,we recognize that labor is unlikely to enjoy a resurgence in pricing power.Despite the margin headwind,our equity forecasts shift meaningfully higher this year:developed market(DM)forecasts up 360bps,to 8.40%(in USD),and emerging m
106、arket(EM)forecasts up 320bps,to 10.10%(in USD).8 The slight narrowing of the wedge between DM and EM returns reflects greater margin resilience in markets such as the U.S.and Europe,where our local currency forecasts are up 380bps,to 7.90%,for U.S.stocks and up 260bps,to 8.40%,for eurozone stocks.Wh
107、ile UK and Japan also see improvement,it is a little less pronounced given the unfavorable sector mix of the UK index,and the relative outperformance of both UK and Japanese equities in 2022(Exhibit 8).8 Due to a change in assumptions adopted this year,we now treat MSCI China as an asset whose local
108、 currency is CNY.As a result,MSCI China and MSCI Emerging Markets data from 2022 may not be directly comparable to 2023.Our LTCMA equity forecasts move significantly higher this yearExhibit 8:LTCMA forecasts,2023 vs.2022,USD terms202320220%2%4%6%8%10%12%U.S.largecapUKJapanEuro areaEmergingmarkets7.9
109、%9.1%10.4%10.5%10.1%4.1%5.0%6.7%7.1%6.9%Source:J.P.Morgan Asset Management;data as of September 30,2022.Please note that we changed our forecasting methodology for MSCI China this year,now treating the market as an asset whose local currency is CNY.The change in our emerging market equity returns re
110、flects this change.Alternatives solid returns,renewedappealEven as return forecasts for public markets roared back this year,alternatives still offer benefits that cannot be easily found elsewhere.Over the last few years,alternative assets provided relative safety for those willing to forgo liquidit
111、y,a welcome source of income and strong return uplift.Those attractive qualities endure.Real assets showed their worth this year,with valuations broadly holding up even as stock markets slumped.Income from real estate and infrastructure remained roughly stable while bond yields caught up to their le
112、vel.Private equity,meanwhile,continues to have a significant cushion of dry powder.This may mitigate the risk of asset markdowns,which some investors fear may dent private equity returns in the short run.Nevertheless,we have included an explicit adjustment for the impact of potential markdowns over
113、the next year or two in our return forecast for private equity.Higher public market return forecasts have pushed up our expectations for financial alts.Cap-weighted private equity returns increase 180bps,to 9.90%;hedge fund returns are up between 110bps and 220bps,depending on strategy;and direct le
114、nding jumps 90bps,to 7.80%.In all financial alternatives categories,we continue to see improving alpha trends that are likely to benefit further as dry powder meets the capex demand that we anticipate picking up in the 2020s.Executive summaryJ.P.Morgan Asset Management 15While our numbers include an
115、 adjustment for potential writedowns that may be crystalized in the next year,generally the private equity industry seems well insulated with sufficient capital to manage such issues.Given that sharp moves in public markets may act on private asset markets only with a lag,in our view a small adjustm
116、ent for markdown risk in the short run is prudent.Real estate valuations and cash flows hold steady despite the turmoil in public markets in 2022.However,the higher interest rate environment pushes our forecasts down at the margin:Core U.S.real estate declines 10bps,to 5.70%.Global core infrastructu
117、re rises 20bps,to 6.30%and global core transportation increases 10bps,to 7.50%.Those gains reflect the ongoing attractiveness of global real assets as a theme.9 ESG:environmental,social and governance.Our commodity return forecasts are up 50bps,to 3.10%.The commodity supercycle is not yet over,despi
118、te some weakness in metals prices this year,even as energy prices surged.Finally,we add timber to our coverage universe this year;we expect demand for these assets to grow sharply as investors value their positive ESG9 bias,as well as the attractive forecast returns of 6.70%for global timber.Across
119、all alternative sectors and strategies,future performance may exhibit wider dispersion of returns Exhibit 9:Selected alternative strategies return assumptions(levered,1 net of fees,%)in local currencyFinancial alternatives20232022Real assets20232022Private equity(USD)*Real estate-direct(local curren
120、cy)Cap-weighted composite 9.908.10U.S.core5.705.80Private equity-small cap9.507.40U.S.value-added7.707.70Private equity-mid cap9.407.60European core4.704.80Private equity-large/mega cap10.208.40European value-added6.706.80Private debt(USD)Asia-Pacific core6.106.50Direct lending7.806.90REITs(local cu
121、rrency)Venture capital(USD)U.S.REITs6.805.70Venture capital 8.50n/aEuropean REITs6.105.10Hedge funds(USD)Asia-Pacific REITs5.105.00Equity long bias5.003.30Global REITs6.405.40Event-driven5.403.20Global infrastructure(USD)Relative value4.903.80Core6.306.10Macro4.102.70Global transport(USD)Diversified
122、5.003.60Core7.507.40Conservative3.703.30Global timber(USD)Global timber6.70n/aCommodities(USD)Commodities3.102.60Gold3.503.00Source:J.P.Morgan Asset Management;estimates as of September 30,2021,and September 30,2022.*All return assumptions incorporate leverage,except for commodities,where it does no
123、t apply.*The private equity composite is AUM-weighted:65%large cap and mega cap,25%mid cap and 10%small cap.Capitalization size categories refer to the size of the asset pool,which has a direct correlation to the size of companies acquired,except in the case of mega cap.The Diversified assumption re
124、presents the projected return for multi-strategy hedge funds.The Conservative assumption represents the projected return for multi-strategy hedge funds that seek to achieve consistent returns and low overall portfolio volatility by primarily investing in lower volatility strategies such as equity ma
125、rket neutral and fixed income arbitrage.The 2023 Conservative assumption uses a 0.70 beta to Diversified.The global composite is built assuming the following weights:roughly 65%U.S.,15%Europe and 20%Asia-Pacific.Back to basics16 2023 Long-Term Capital Market AssumptionsPortfolio design more choice,m
126、ore opportunity10 Valuations,margins and prevailing yields are the more cyclical elements of our return calculations;other components(trend growth,productivity,dividend yields,equilibrium credit spreads,etc.)are more secular in nature and tend to evolve only slowly.Overall,the return outlook in this
127、 years LTCMAs stands in stark contrast to last years.It has taken a meaningful reset in asset markets to bring us to this place,and considerable pain for bondholders over a much shorter horizon than we had expected.Still,the underlying patterns of economic growth look stable,and the assumptions that
128、 underpin asset returns cycle-neutral real cash rates,curve shape,default and recovery rates,and margin expectations are also little altered.But the market drawdown in 2022 is now creating an increasingly attractive entry point for long-term investors.For many years,cyclical headwinds led to a large
129、 gap between secular returns10 and our return forecasts.But these headwinds have mostly cleared(Exhibit 10).Many of our asset return forecasts are now at,or even a little above,fair equilibrium levels.This should in turn reassure long-term investors that the current market turmoil will be time limit
130、ed.Some of the distortions that were apparent both in return uplift(premia)across asset classes and when comparing returns and Sharpe ratios have either disappeared or greatly diminished(Exhibits 11A and 11B).That is clearly a positive development.While there are both topside and downside risks to o
131、ur outlook,we acknowledge two specific caveats to any optimism.First,entry points do matter,even for long-term investors.And second,correlation patterns have been unhelpful to balanced investors in 2022.This year,our return forecasts are now at,or even a little above,our estimates of secular returns
132、Exhibit 10:Secular and cyclical return drivers for key assets in USDCyclical returnEquilibrium returnFX impact2023 LTCMA estimate,USDU.S.equityEurozoneequity EM equityJapanequityUK equityACWIU.S.HYU.S.10-yrU.S.AggbondsUSD60/40*-4%-2%0%2%4%6%8%10%12%Source:J.P.Morgan Asset Management;data as of Septe
133、mber 30,2022.Over the past year,distortions in return uplift(premia)have diminished and Sharpe ratios have improved for manyassetsExhibit 11A:Return uplift(premia)Exhibit 11B:Sharpe ratios2023 LTCMA2022 LTCMA0%1%2%3%4%5%High yieldInvestment gradePrivate equityReal estateSmall capEquityDuration0.00.1
134、0.20.30.40.5U.S.core real estatePrivate equityEmerging markets sovereign debtU.S.high yield bondsU.S.inv grade corporate bondsU.S.Aggregate bondsU.S.long TreasuriesU.S.intermediate TreasuriesEmerging markets equityEAFE equityU.S.large cap2023 Sharpe ratio2022 Sharpe ratioSource:J.P.Morgan Asset Mana
135、gement;data as of September 30,2022.Executive summaryJ.P.Morgan Asset Management 17While entry points are much more attractive than they were a year ago,they could get even more attractive if the cyclical weakness of 2022 extends into 2023,as seems plausible.Investors thus need to consider the timin
136、g and approach of their entry point,with an eye to how much drawdown they can tolerate in the short term.With policy rates likely to rise further over the next year,investors will also be penalized less for opportunistically holding some cash in the short term in order to take advantage of any furth
137、er dislocations in asset markets.Whatever the precise timing and approach of investor entry points,it seems evident that clearing the return hurdles common in the investing industry,such as the 7%return hurdle for U.S.public plans that we discussed in our paper“How investors can reach their 7%return
138、 target,”is now eminently achievable.11We explore the second caveat,related to correlation patterns,in our Portfolio Implications chapter.This year,stocks and bonds moved together as inflation fears dominated,reducing the diversification benefit of bonds.Based on our assumption that the inflation ge
139、nie will(eventually)return to its bottle,we believe a negative stock-bond correlation will reassert itself.Still,this year has showed that alternative assets are powerful diversifiers at times when the traditional economic model is under strain,and with it the usual relationship between stock and bo
140、nd returns.Few portfolios these days are simply stocks and bonds,and as our opportunity set grows often to incorporate assets with 11 John Bilton,Jared Gross et al.,“How investors can reach their 7%return target,”J.P.Morgan Asset Management,July 2021.“fat tails,”or non-normal return distribution our
141、 traditional allocation frameworks must also evolve.Simply put,2022 reminds us that asset correlations can move around and diversification cant be taken for granted.Ultimately,the main message from this years LTCMAs is that long-term asset return forecasts for portfolios of all kinds are better toda
142、y than they have been in a decade(Exhibits 12A and 12B).But this has taken a rapid and forced reversal of long-standing dislocations in policy,and an accompanying bond market rout.While the high inflation that finally stirred policymakers into action is likely to moderate,the underlying drivers of h
143、igher prices scarcity of important goods and commodities,tightness in labor markets and heightened geopolitical tension will remain risks for investors for the rest of the decade.Addressing these issues is likely to require substantial investment,meaning we may be about to see a capex boom just as c
144、entral banks are raising rates and capital is becoming scarcer(Exhibit 13).For investors,this all translates to a better environment to derive returns both from market beta and from active alpha.For investors with capital to deploy,a wide range of assets offer appealing potential returns.For those s
145、till cautious,bonds can once again provide both income and a safe haven.Meanwhile,those rotating existing portfolios are no longer confined to less liquid assets to boost returns,and balanced portfolios can compound returns at a much better pace.Stock-bond frontiers are significantly higher than las
146、t year,with much improved returns for both bonds and equities.Alternative assets continue to offer the potential for alpha,inflation protection,and diversificationExhibit 12A:USD stock-bond frontiers and 60/40 portfolios based on 2023 vs.2022 LTCMAs for risk and return(%)Exhibit 12B:EUR stock-bond f
147、rontiers and 60/40 portfolios based on 2023 vs.2022 LTCMAs for risk and return(%)60/40 portfolio(2008)60/40 portfolio(2022)60/40 portfolio(2023)Euro CashU.S.Large Cap(Hed)Euro Agg BondsPrivate EquityEuro Area Large CapEM Debt(HC,Hed)European Core RE U.S.HY(Hed)Euro Govt IL bondsDirect LendingAC Worl
148、d EquityWorld Govt Bonds(Hed)Div Hedge Funds(Hed)0%1%2%3%4%5%6%7%8%9%0%2%4%6%8%10%12%14%16%18%20%Compound ReturnVolatilityU.S.CashU.S.HYU.S.core REAC world equityEM equityDiv.hedge fundsPrivate equityU.S.Agg bondsEM Debt(HC)U.S.Intermediate TreasuriesU.S.large capEAFE EquityWorld government bonds(H)
149、0%2%4%6%8%10%12%0%5%10%15%20%25%Compound ReturnVolatility2008 stock-bondfrontier2022 stock-bondfrontier2023 stock-bondfrontierSource:J.P.Morgan Asset Management;data as of September 30,2022.Back to basics18 2023 Long-Term Capital Market AssumptionsOver our 10-to 15-year horizon,we look through some
150、of the cyclical risks and instead home in on risks that might alter trend growth or inflation,or leave a lasting imprint on long-term asset returnsExhibit 13:Our core case sees positive returns and stable equilibrium growth but more two-sided risks to inflationRiskUpside or downside?DescriptionMacro
151、 or asset class implicationsWorsening climate or environmental situationDownsideMore frequent or more extreme weather events leading to destruction of productive assets and disruptions to food and basic materials supplyNear-term economic downside from disruptions to supply side;forced migration may
152、lead to international tensions in extreme cases.Positive for bonds,commodities(ex-energy),real assets,negative for stocks,creditRussia-Ukraine war spills over into other conflictsDownsideThe current war spills over into neighboring countries,pulling in NATO,or ignites tension in other regions;may al
153、so include meaningful uplift in cyberconflict that threatens infrastructureElevated geopolitical tension a feature in our near-term analysis;may well have lasting trade implications;positive for USD and supportive for commodities;adds to volatility in many asset classesFurther weaponization of fuel
154、and food DownsideGas supply disruption and interruption to trade in grain from Ukraine have created impetus for governments to invest heavily to reinforce supply chains;this investment may not lead to growth in productive assetsInitially inflationary and adds to volatility of inflation over longer t
155、erm,as future conflicts or disputes may also cause bursts of headline inflation;may create a short-term windfall for recipients of capex dollarsAccelerated adoption of technologyUpsideCommunication and automation technologies proven over the pandemic become more ubiquitous,generating an uplift in pr
156、oductivityPositive for real GDP and limits inflation;supportive for stocks,credit and other risk assets;mitigates some right-tail inflation risks from bond marketsStronger than expected investment and capex cycleUpsideSurge in fiscal spending and upswing in capex that followed pandemic lead to build
157、ing of productive capacity and upskilling in laborPositive for real GDP and limits inflation;supportive for stocks,credit and other risk assets;mitigates some right-tail inflation risks from bond markets;may favor developed over emerging markets Rapid abandonment of USD as key reserve currencyDownsi
158、deChallenger to USD(from either crypto or from an alternative fiat currency)emerges and pulls reserve assets away from USD;diminishes demand for U.S.assets and refocuses attention on U.S.deficitNegative for growth,USD,bonds,credit and stocks;positive for real assets and commoditiesSecondary pandemic
159、s or emergence of vaccine-resistant strainsDownsideVaccine-resistant strain of recent pandemic or entirely new pathogen emerges,necessitating rolling lockdowns and creating disruption to supply chains globallyNegative for growth but may lead to further stimulus,leading to cyclical volatility and ris
160、king further expansion of deficits;positive for bonds in short run but risks of financial repression in longer term;increases volatility in equities and credit;generally positive at margin for real assets and commodities relative to financial assetsInflation expectations become embedded,forcing pers
161、istently tight policyDownsideCentral banks overshoot reasonable levels of financial conditions due to embedded consumer inflation expectations;growth is stifled and investment discouraged due to high interest rates and uncertainty over pricesBond investors suffer from jump in yields,while equity mul
162、tiples contract further;growth equities under pressure and margins hit across the board.Better-performers likely to be real assets and infrastructure;consumer wealth degraded due to inflation,potentially leading to more extreme political decisionsLiquidity crisis within nonbank financial systemDowns
163、ideContagion risks grow in some parts of the financial system without direct last resort,meaning that despite open market or liquidity stabilization,price action becomes disorderlyFire sale of assets to meet margin calls may precipitate sharp fall in credit supply,not initially noted due to limited
164、refinancing wall;however,over longer run,levered companies and sectors come under significant pressureFiscal dominance diminishes impact of monetary policy Upside and downsideEconomic stress for households or key industries prompts excessive or pro-cyclical fiscal support measures Confidence and,in
165、turn,growth supported in near term but may extend inflationary risks.If done prudently,may be supportive for risk assets in shorter term,but may mean tighter monetary policy for longer to counteract any lingering inflation impact with knock on negative impact for longer term asset returns.Done reckl
166、essly or without proper funding risks increasing market volatility Source:J.P.Morgan Asset Management;data as of October 2022.Executive summaryJ.P.Morgan Asset Management 19Macroeconomic assumptions Inching forward:Lingering inflation,moderate growthAuthorsMichael HoodGlobal Strategist Multi-Asset S
167、olutionsDr.David Kelly,CFAChief Global Strategist Head of Global Market InsightsIn brief The pandemic and its aftershocks have not changed our long-term growth outlook by as much as seemed possible during the past two years.Demographics continue to constrain growth prospects,especially in developed
168、markets and many emerging Asian economies.Our growth projections have not changed significantly from last year,although we have trimmed forecasts in several economies to take account of elevated starting positions.We remain optimistic about long-term prospects for productivity growth,although our as
169、sumptions in this area have not changed from last year.The major question hanging over the outlook is whether the world has moved into a high inflation regime.While many economies are overheating today and inflation expectations have moved up,we think many secular forces that have depressed inflatio
170、n in recent decades remain in place.Additionally,we think most central banks will pursue their price stability goals assiduously over the medium term.As a result,our inflation forecasts have moved up modestly but not dramatically.20 2023 Long-Term Capital Market AssumptionsGrowth outlookWhat will be
171、 the long-term macroeconomic consequences of the pandemic and its aftermath?At this point,we can say very little for sure.Already,though,many early predictions,such as large-scale migration away from cities,seem not to be panning out.In last years publication,we posited that expansionary fiscal poli
172、cies could become a persistent feature of the macro environment.While that might prove correct in some cases,the U.S.fiscal stance has turned notably tight during 2022.The prospect of deglobalization has also loomed,but without yet finding much support in the data.All told,we do not think the long-t
173、erm outlook for real growth has changed significantly in the past couple of years(Exhibit 1).In our view,the main moving parts that determine long-term growth demographics and technological change will not feel much impact from the pandemic era.Our forecasts expect a smaller contribution to growth f
174、rom the labor force(including the improvement,over time,in human capital)than occurred in the past,but a slightly greater push from technology.Total factor productivity(TFP)the part of our growth-accounting framework that we think captures technological change disappointed in the period following th
175、e global financial crisis,but we expect somewhat better performance from here.Indeed,the pandemic appears to have catalyzed technology adoption in many parts of the economy.Perhaps this will be one of its genuine and lasting legacies.We see much greater uncertainty about the inflation environment.Ne
176、arly every country in our sample is currently experiencing its highest inflation rate in decades.Have we moved back into a 1970s-style high inflation atmosphere?In answering that question,we find it helpful to ask two more.First,has the global economy become more inherently inflationary?We acknowled
177、ge that inflation expectations have moved sharply higher,a development likely to reverberate for some years.But we are skeptical about broader structural changes and attribute much of todays high inflation to economic overheating.We think many of the secular forces that pushed inflation down during
178、the prior three decades remain in place.Still,we see competing forces that create two-way risks to inflation,and as a result we have increased our estimate of inflation volatility this year.Second,what preferences will societies and governments display?Over the long run,inflation is partly a policy
179、choice.Our reading of current conditions suggests that citizens and governments prefer low inflation,and we expect central banks to work toward restoring broad price stability over the next few years.GDP growth:Mostly stable,with current overheating pressureWe are modestly trimming our GDP growth pr
180、ojections for several developed market(DM)economies this year,partly reflecting elevated starting points.Our views about the underlying drivers of growth labor forces,capital stocks and TFP have not changed significantly.Weak demographics slower-growing and aging populations continue,in our view,to
181、represent the main constraint on long-term growth prospects in most DM and many emerging market(EM)economies.Last year,we raised our expectation for total factor productivity growth,a concept that over the long run we think owes heavily to technological change.Incoming information over the past year
182、 has broadly corroborated that upgrade but does not,in our view,justify any further increment.The most striking development since last year has been the overheating pressure evident in many DM economies,with high inflation stemming in part from tight labor markets.We think unemployment rates in the
183、U.S.and the UK,and possibly the euro area,stand below levels likely to be achieved,on average,during the next 15 years.As a result,our long-run forecasts for these economies now include a small cyclical penalty.The early stages of the coronavirus pandemic left enormous footprints in job markets and
184、led to widespread speculation about ongoing structural change in work relationships.There was much talk of the so-called Great Resignation in the U.S.Two years into the pandemic era,though,we see only limited signs of permanent change.Labor force participation rates have recovered across most age an
185、d gender cohorts,if not fully,and with still-notable shortfalls among the age 5565 group,where early retirements were common in 2020.Migration has restarted in many countries.And a spell of early retirements has given way to labor force reentry.Macroeconomic assumptionsJ.P.Morgan Asset Management 21
186、In forecasting growth,we therefore put more stress on the long-run growth rates of the prime-age and senior populations,generally assuming broadly stable participation from the former and a gradual uptrend in employment rates among older people.We see rising senior participation as a well-establishe
187、d secular trend,one fueled primarily by better health outcomes.In the U.S.,we expect employment to average 0.2%growth over the coming 1015 years,held back partly by less immigration than in recent decades.Labor forces will likely shrink in Japan and the euro area,given their slower population growth
188、 and older age distribution.Sweden,Canada and particularly Australia,with their younger populations,should enjoy more growth support from demographics.The slightly more favorable demographic outlook in emerging market countries in aggregate conceals significant differences.Excepting India,the major
189、EM Asian countries are experiencing slow overall population growth and outright declines among prime-age people.In the past,we applied a bonus to the China labor force projection to take account of urbanization,which shifts people from subsistence farming and similar activities into the modern econo
190、my.That process continues but now looks fairly well advanced.As a result,our labor force forecast for China edges lower this year.It remains positive,though,at 0.5%,in contrast with Korea(0.0%)and Taiwan(-0.4%).Population and labor force growth in Latin America,emerging Europe and Africa,along with
191、India,is expected to run significantly faster.Our 2023 assumptions anticipate mostly stable real GDP growth and higher but not dramatically higher inflationExhibit 1:2023 Long-Term Capital Market Macroeconomic Assumptions(%,annual average)Real GDPInflation20232022Change20232022ChangeDeveloped market
192、s1.41.5-0.12.11.80.3United States1.61.7-0.12.62.30.3Euro area1.11.2-0.11.81.50.3Japan0.70.70.00.90.70.2United Kingdom1.31.4-0.12.42.20.2Australia2.12.2-0.12.42.20.2Canada1.61.60.02.31.90.4Sweden1.81.80.02.11.90.2Switzerland1.41.40.01.00.60.4Emerging markets3.53.7-0.23.43.30.1China4.04.2-0.22.22.5-0.
193、3India5.76.0-0.34.54.50.0Russia0.40.8-0.48.05.03.0Brazil2.02.00.04.64.30.3Korea2.02.00.02.02.00.0Taiwan1.71.70.01.31.10.2Mexico2.02.2-0.23.93.70.2South Africa2.12.2-0.15.55.30.2Turkey3.13.10.016.012.04.0Global2.22.20.02.62.40.2Source:J.P.Morgan Asset Management;estimates as of September 30,2022.Prev
194、ious years real GDP forecasts shown include cyclical bonuses.Givendepressed post-shock starting points,in last years edition we added cyclical bonuses to our 2021 trend growth projections.This year,our 2023 forecasting returns to trend rates alone.In comparing 2022 with 2023 trend rates here,we do n
195、ot use last years rate-plus-cyclical-bonus figure but only the trend rate.Inching forward:Lingering inflation,moderate growth22 2023 Long-Term Capital Market AssumptionsFurther progress in total factor productivity Over the long haul,annual TFP growth has averaged 0.5%0.6%across DM economies.Like we
196、 did last year,we take a slightly more optimistic forward-looking view,forecasting 0.8%for the U.S.and 0.7%for the DM aggregate.TFP growth showed signs of shifting higher late in the previous expansion.In addition,the pandemic appears to have catalyzed widespread technology adoption and changes in b
197、usiness work practices that take advantage of the past few decades innovations(Exhibit 2).Capex spending has moved toward generating intellectual property,historically linked with faster TFP growth.At the same time,the rapid overheating of major economies at the early stage of an expansion suggests
198、that a 1990s-style TFP boom is not yet materializing,making additional upgrades unnecessary at this stage.The pandemic looks to have catalyzed widespread technology adoptionExhibit 2:Total factor productivity trends-1.0-0.50.00.51.01.52.02.56720142021U.S.CanadaAustralia%y/y,10-
199、year averageSource:Haver Analytics,J.P.Morgan Asset Management;data as of 2021.As with demographics,TFP assumptions vary widely among EM economies.India the lowest income country in our sample leads the way,in part reflecting the large distance between itself and the global technology frontier,and t
200、he resulting room for catch-up.We project Korea and Taiwan to run TFP growth rates similar to DM economies.In many other EM economies,though,we forecast more sluggish TFP growth.Inbound technology transfer seems likely to prove a challenge for China in coming years,and Latin American economies have
201、struggled with technology adoption.Our U.S.growth forecast edges down 0.1 percentage point(ppt),to 1.6%(Exhibit 3).While our trend forecast has not changed,we are applying a small cyclical penalty this year to take account of the economys present state.We cannot say with any certainty where the“neut
202、ral rate”of unemployment is,but todays 3.6%joblessness rate is very low by historical standards.We estimate that growth of 0.1%below potential,on average,would be required to bring it back to longer-term norms.While our trend forecast has not changed,this year we apply a small cyclical penaltyExhibi
203、t 3:Contribution to long-term GDP growthLabor inputCapital servicesTFP0.10.1-0.10.10.80.50.20.60.80.60.60.6-0.40.00.40.81.21.62.0U.S.EMUJPUKppt,annual averageSource:J.P.Morgan Asset Management;data and forecasts as of September 2022.Similar logic applies to our growth forecasts for the euro area and
204、 the UK,where we also trim our projections by 0.1ppt,to 1.1%and 1.3%,respectively.Other DM economies appear to be overheating by less.We leave our other forecasts unchanged,except for Australia,where a modest reduction in the capital stock assumption brings the overall growth figure down by 0.1ppt,t
205、o 2.1%.Even with that cut,Australia is still the DM growth standout.In EM economies,aside from India and China,most of our forecasts have not changed significantly.Our China forecast moves down 0.2ppt,to 4.0%.A revised historical growth decomposition has caused us to lower our sights on TFP growth,w
206、hich,together with the urbanization story,accounts for the reduction.China has maintained solid growth performance after moving into middle income territory in contrast to many other formerly emerging economies that rose to middle income status so the economys room for further catch-up has continued
207、 to narrow.Macroeconomic assumptionsJ.P.Morgan Asset Management 23We also revise our India growth forecast down,for the second straight year.While its growth projection remains the highest among our sample,Indias realized performance has deteriorated in recent years.Earlier enthusiasm for the countr
208、ys prospects has dimmed somewhat as the structural reform process has slowed.Most of our other EM growth forecasts do not change this year,although we shave 0.2ppt from Mexicos and 0.1ppt from South Africas projection.Both face challenging policy environments that seem likely to inhibit productivity
209、 growth,and South Africas investment rate has slowed significantly.Inflation outlookHigher inflation,but not the 1970sOur inflation projections start with the recognition that the worlds central banks generally regard achieving steady,low inflation as one of their most important goals.Moreover,we as
210、sume that,in theory,they should be able to influence aggregate demand enough to achieve this goal in the long run.Thus,any long-term inflation forecast begins with the central banks inflation targets.However,a central bank resolving to achieve an inflation target is a little like agreeing with your
211、doctor on a personal weight goal for the year ahead.In theory,achieving this target is within your control.Yet certain forces,including your own determination,may conspire to make you overshoot or undershoot that goal.Moreover,if you begin some distance from that target,it will take time to get ther
212、e.Meanwhile,your actual average weight will fluctuate and may further deviate from that long-run goal.In our inflation projections,we first outline the central banks targets and then consider the long-term forces that could impact the ability of central banks to achieve these targets.Finally,for eac
213、h country and region,we look at how a transition path,taking inflation from current rates to a presumed long-run trend,would impact actual realized inflation over the next 1015 years.Central bank targets:Some DM-EM divergenceExhibit 4 outlines the long-run inflation goals for the major DM and EM cen
214、tral banks.The Federal Reserve(Fed)has a symmetrical target of 2%for long-run inflation.We note,however,this is inflation measured by the personal consumption deflator.Based on the gap between inflation as measured by CPI and by the personal consumption deflator over the past 20 years,this implies a
215、 target of roughly 2.3%inflation measured by CPI,the index our Long-Term Capital Market Assumptions use.Among other DM central banks,the European Central Bank(ECB),the UK,Canada and Sweden have symmetrical goals of 2%inflation,while the Swiss National Bank(SNB)aims for inflation close to or below 2%
216、.By contrast,Japan aims for inflation of at least 2%and Australia targets inflation of between 2%and 3%.Inflation goals in emerging markets are generally higher.In particular,the central banks of India,Brazil and South Africa all currently have inflation targets of over 3%;Mexico has a symmetrical 3
217、%target.China does not publish a long-term inflation target but is estimating 3%for 2022.Taiwan also does not publish a long-term inflation target,while the Bank of Korea(BoK)has a 2%target,more in line with DM central banks.Inching forward:Lingering inflation,moderate growth24 2023 Long-Term Capita
218、l Market AssumptionsAny long-term inflation forecast begins with central banks inflation targetsExhibit 4:Central bank inflation targetsCentral bank(CB)CB inflation targetCurrent policySourceU.S.(Federal Reserve)Headline PCEAverage inflation targeting:Will allow for inflation to overshoot 2%for a pe
219、riod of time to make up for periods when inflation undershoots 2%Federal Reserve,“Statement on Longer-Run Goals and Monetary Policy Strategy,”January 2022Eurozone (European Central Bank)Harmonised Index of Consumer Prices(HICP)Targets inflation of 2%over the mediumtermEuropean Central Bank,“Our Mone
220、tary Policy Statement at a Glance,”July 2022UK(Bank of England)Headline CPISeeks significant progress toward achieving inflation at 2%sustainablyBank of England,“Monetary Policy Summary,”May 2022Japan(Bank of Japan)Core CPI(ex-food)Inflation-overshooting commitment:Continue to expand the monetary ba
221、se until the year-on-year rate of increase in the observed CPI(all items less fresh food)exceeds 2%and stays above the target in a stable mannerBank of Japan,“Price Stability Target of 2 Percent and Quantitative and Qualitative Monetary Easing with Yield Curve Control”Canada (Bank of Canada)Headline
222、 CPIAims to keep inflation at the 2%midpoint,as measured by the 12-month rate of change in CPI,of a target range of 1%to 3%Bank of Canada,“Monetary Policy Framework Renewal,”December 2021Australia (Reserve Bank ofAustralia)Headline CPIAims to achieve a medium-term average rate of inflation within 2%
223、3%Reserve Bank of Australia,“Statement on the Conduct of Monetary Policy,”August 14,1996 Switzerland(Swiss National Bank)Headline CPIAims to achieve positive rates of inflation below 2%Swiss National Bank,“Monetary Policy Strategy”Sweden(Riksbank)CPIFAims to achieve 2%inflation,with a tolerance rang
224、e of 1%3%Riksbank monetary policyChina (Peoples Bank of China)CPIHas set its inflation target at around 3%for 2022.The PBoC does not publish a long-term inflation target 2022 Government Work Report of the Chinese State CouncilIndia (Reserve Bank of India)CPITargets inflation of 4%for the next five y
225、ears,with an upper tolerance limit of 6%and a lower tolerance limit of 2%Reserve Bank of India monetary policyBrazil (Central Bank of Brazil)CPITargets inflation of 3.5%over the next year and 3.25%over the next three-year period,with a 1.5%tolerance margin on either sideCentral bank inflation report
226、,June 2022Mexico (Bank of Mexico)CPITargets inflation of 3%,with a 1ppt tolerance range above and below thatlevel Bank of Mexico quarterly report,1Q 2022Korea (Bank of Korea)CPITargets inflation at 2%over the medium term.Prior to 2016,the BoK published inflation target ranges with either implicit or
227、 explicit inflation targets Bank of Korea monetary policy report,June 2022Taiwan(Central Bank of the Republic of China)CPIDoes not target inflation Central Bank of the Republic of China monetary policySouth Africa(South African Reserve Bank)CPITargets inflation of 3%6%but does not target an average
228、inflation rate.Since 2017,the MPC has emphasized that it would like to see inflation close to the 4.5%midpoint of the target range South African Reserve Bank,“Statement of the Monetary Policy Committee,”March 2022Source:J.P.Morgan Asset Management;data and forecasts as of September 2022.Macroeconomi
229、c assumptionsJ.P.Morgan Asset Management 25Economic forces impacting the Feds ability to hit its inflation target The surge in inflation around the world as the pandemic has faded serves as a reminder that central banks face several challenges impacting their ability to achieve inflation targets.Exh
230、ibit 5 summarizes some of the forces that are likely to add to or subtract from inflationary pressures over the next 1015 years.Strong forces and counterforces will push inflation up and down over the next decadeExhibit 5:Long-term inflation influences Economic forcesLast global expansion(200819)Nex
231、t 1015 yearsIncome distribution+Globalization process+ESG0+Inflation expectations+Targeting unemployment below NAIRU0+Fiscal policyOnline markets&information availability Energy costs+0Union membershipTechnology adoptionSource:J.P.Morgan Asset Management;data and forecasts as of September 2022.Incom
232、e distribution A more unequal income distribution has tended to suppress inflation in recent decades,as the richest households divert their income toward the purchase of assets and away from goods and services.However,tight labor markets at the start of this forecast period,combined with a rise in p
233、olitical populism,could leave more money in the pockets of poor and middle income households going forward.That would boost both demand and inflation.Globalization process As we conclude in“Globalization will evolve but not unravel,”in our 2023 Long-Term Capital Market Assumptions,on balance we expe
234、ct less build-out of globalization over the next 1015 years,with some risk of partial deglobalization.In recent decades,globalization has generally been a disinflationary force due to declining tariff levels;lower costs achieved by tapping cheaper labor markets around the world;and the indirect effe
235、ct of global competition,which has forced domestic firms to be more efficient.Conversely,any retreat from globalization in the years ahead could intensify inflation pressures,especially for goods.ESG A growing global focus on sustainability could also add to inflation going forward,at least in the s
236、hort run.The cheapest methods of producing,distributing and consuming food,energy and other commodities are generally not friendly to the planet.To the extent that governments try to push against these practices,inflationary pressures could be higher.However,in the very long run,sustainability shoul
237、d have disinflationary effects,as it counteracts practices that are contributing to drought,soil erosion,deforestation and global warming.Inflation expectations At least in the early years of our 10-to 15-year horizon,elevated inflation expectations could add to actual inflation.As economists freque
238、ntly note,expectations play a key role in setting prices.The high inflation seen around the world as the impact of the pandemic has eased is encouraging workers to demand higher wages and companies to raise their prices.This effect could fade out entirely in the aftermath of a recession.For now,it i
239、s pushing inflation higher.Central banks targeting a too-low nonaccelerating inflation rate of unemployment(NAIRU)Most central banks assume a dual responsibility to control inflation and help facilitate full employment.However,both central bankers themselves and politicians may try to achieve or sus
240、tain a lower unemployment rate than is theoretically compatible with stable inflation.This risk has grown because of both the sheer uncertainty of economic relationships in the aftermath of the pandemic and questions concerning the ability of central bankers to make decisions independently,particula
241、rly when facing populist political leaders.Fiscal drag After the extreme fiscal stimulus of the pandemic years,most economies face some fiscal drag going forward.In the U.S.,the decline is dramatic,with the deficit falling from USD 2.4 trillion in fiscal 2021 to USD 1.4 trillion in fiscal 2022 the b
242、iggest deficit decline as a percent of GDP since the demobilization following World War II.This is likely to continue for years as governments,saddled with heightened levels of debt and higher interest costs,cut budgets to ensure fiscal stability.Inching forward:Lingering inflation,moderate growth26
243、 2023 Long-Term Capital Market Assumptions Online markets and information availability One of the most potent forces depressing inflation in recent decades has been the ability to buy an increasing variety of goods and services online.This lets buyers see different prices for the same product and sw
244、itch between sellers with very little effort.We see this phenomenon as one aspect of the technology adoption story mentioned earlier,which might both boost real growth and restrain inflation.Energy prices At the start of our forecast horizon,global energy prices were at very elevated levels.Oil was
245、running close to USD 90 per barrel for Brent crude;natural gas prices were at very high levels,especially in Europe;and refinery margins were much wider than usual.However,while this was a large part of the inflation story in 2022,we expect these prices to elicit both demand destruction and increase
246、d supplies in the years ahead.Consequently,energy prices could,on average,drift sideways over the forecast horizon.Union membership Trade union membership has generally declined in recent decades,and we expect this trend to continue,providing some further downward impetus to inflation.It is nearly i
247、mpossible to estimate precisely the impacts on inflation of most of these forces over the next 10 to 15 years.On balance,we believe that,for most countries,they will tend to cause inflation to slightly overshoot central bank targets.One factor that will clearly be different across countries is the i
248、mpact of changes in exchange rates.Our FX assumptions outline what changes we expect across countries(Exhibit 6,which also includes the observed import share of GDP).As a very rough estimate of the inflation impact of changing exchange rates,we multiply each countrys import share of GDP in 2020 by t
249、he expected annual change in its currency.By this measure,a rising euro over the forecast period will result in a drag on eurozone inflation while a falling dollar will add something to U.S.inflation.Our forecast expects a falling dollar all else equal will push U.S.inflation higherExhibit 6:Exchang
250、e rate impacts on inflationEconomic forcesImport share of GDP(2020)Expected annual change in trade-weighted exchange rateCrude annual impact on inflation of change in exchange rateU.S.dollar13.2-1.00.13Euro17.01.3-0.22British pound28.00.9-0.25Japanese yen15.51.7-0.26Canadian dollar31.40.5-0.16Austra
251、lian dollar20.10.2-0.04Swiss franc53.51.6-0.86Swedish krona40.01.4-0.56Chinese yuan16.01.6-0.26Brazilian real15.5-0.70.11Mexican peso38.0-1.90.72Source:J.P.Morgan Asset Management;data and forecasts as of September 2022.Macroeconomic assumptionsJ.P.Morgan Asset Management 27Transition effects:In mos
252、t countries,adding to inflationFinally,we consider the impact of the starting point for inflation relative to its long-term trend.At publishing time,the monthly running rate for inflation had backed off from its peak earlier in 2022.However,with higher wage growth,higher inflation expectations and t
253、he lagged impact of higher home prices,inflation in most countries remains significantly above both central bank targets and our estimates of long-run trend inflation.Despite public concern about recent inflation,we expect that inflation rates will moderate quite quickly in 2023 and 2024.Indeed,the
254、current much more hawkish attitudes and actions of central banks suggest that inflation could fall sharply to trend rates,undershoot them and then revert to them in the early years of the forecast.The full details of these dynamics are,of course,well beyond the scope of our Long-Term Capital Market
255、Assumptions.However,it should be noted that,on net,this transition boosts long-term inflation by about 0.1%per year in the U.S.,the eurozone and the U.K.Inching forward:Lingering inflation,moderate growth28 2023 Long-Term Capital Market AssumptionsJ.P.Morgan Asset Management 29I Thematic articles30
256、2023 Long-Term Capital Market AssumptionsThe future of globalization Globalization will evolve but not unravelAuthorsDavid Kelly,CFAChief Global StrategistHead of Global Market Insights StrategyStephanie AliagaMacro Research AnalystGlobal Market Insights StrategyKerry Craig,CFAGlobal Market Strategi
257、stGlobal Market Insights StrategyTilmann Galler,CFAGlobal Market StrategistGlobal Market Insights StrategyTai HuiChief Market Strategist,AsiaGlobal Market Insights StrategyJoel RyzowyPortfolio ManagerAsset Management SolutionsJacob Tadros,CFAPortfolio ManagerMulti-Asset SolutionsIn brief While an er
258、a of increasingly close economic integration may be coming to an end,deglobalization is not inevitable.Globalization will evolve but not unravel.The most likely scenario is a multi-polar world in which trading blocs become more politically aligned.How globalization evolves will likely depend on the
259、role of innovation and automation,demand growth in new markets,rising(or declining)nationalism and shifts in regulation on climate,taxes and data.Winners and losers will emerge across regions and industries:Low wage economies that have derived the greatest benefit of decades of globalization appear
260、at greatest risk.Greater regionalization as supply chains diversify and production moves closer to demand would benefit the broader Asian region and an increasingly wealthy consumer base.While the intensity of goods trade may slow,services trade is likely to accelerate in an increasingly digital wor
261、ld.The rise of“digital sovereignty”as a national security issue likely means increased spending on cybersecurity.As governments adopt more stringent decarbonization standards,new barriers to trade could emerge.We expect substantial investment in renewables,along with persistent demand for traditiona
262、l commodities such as oil and natural gas.J.P.Morgan Asset Management 31The pandemic,supply chain disarray and heightened geopolitical tensions have all raised questions about whether the long trend toward deepening globalization is being thrown into reverse.But its not easy to unwind decades of eco
263、nomic and capital market integration.In our view,the nature of globalization will evolve but not unravel.How globalization evolves in the coming decades will likely depend on the role of innovation and automation,demand growth in new markets,rising(or declining)nationalism and shifts in regulation o
264、n climate,taxes and data.There is a wide spectrum of possible outcomes.The most likely scenario is a multi-polar world in which trading blocs become more politically aligned,sometimes driven by nationalistic(if not blinkered)economic policies.Overall,the global economy could become less efficient.Tr
265、ade intensity in goods likely declines,while services could flourish amid growing digitalization.Who wins and who loses from such a scenario?And what might it mean for investors?The benefits of globalizationFirst,well define our terms.Globalization is the“openness”of markets and economies that allow
266、s for greater integration,particularly through the movement of goods,services,capital and labor.A broader definition also captures the exchange of knowledge,culture and politics across borders.Globalization traces its modern history back to the global institutions and policies established following
267、World War II.These promoted the adoption of free market systems,reduced barriers to commerce and forged international agreements to promote trade and investment.Global trade as a share of GDP rose steadily through the decades,up to the mid 200709 global financial crisis(GFC)(Exhibit 1).The world had
268、 become a much smaller and more digital place.Globalization has dramatically reduced poverty in developing economies one of its most important benefits and created new consumer markets.For example,as the Chinese economy became more open,average daily consumption rose from around USD 1 per person in
269、1990 to USD 11 in 2020.1 Workers from many countries increasingly emigrated to find better job prospects.In 2021,the annual value of remittances to low and middle income countries reached USD 589 billion more than three times the flows from government foreign aid and an important spur to prosperity.
270、2 1 World Bank national accounts data,2019.2 World Bank,Migration and Development Brief,November 2021.3 U.S.Bureau of Labor Statistics,Consumer Price Index,February 2020.This data includes adjustments for quality improvements.Global trade as a share of GDP rose steadily for decades until the financi
271、al crisisExhibit 1:Trade in goods and services10%20%30%40%50%60%70%1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020%of global GDPSource:World Bank,J.P.Morgan Asset Management;data as of July 2022.Meanwhile,the geographical shift in goods production that reduced poverty in some countries booste
272、d consumer buying power in others.Prior to the supply chain havoc caused by the COVID-19 pandemic,new vehicle prices in the U.S.increased by only 3%since 1997.During the same period,clothing prices fell 7%,toy prices declined by 76%,furniture prices dropped 14%,and TV prices were down 98%.3 These de
273、clines underscore how trade has raised the standard of living of low income people in developed markets consumers who devote more of their income to goods than to services.Globalization also fostered technology transfer across markets as expertise moved from developed to developing countries,increas
274、ing the value-add in production and spurring innovation.In 1998,Chinas largest export products were agricultural.Today,China is a major exporter of highly complex goods in sectors such as electronics and machinery.Even as stronger global linkages have delivered clear benefits,resistance to globaliza
275、tion has broadened and intensified.Opponents of the trend have marshaled several arguments to make their case.Globalization will evolve but not unravel32 2023 Long-Term Capital Market AssumptionsThe costs of globalization First,while income inequality between developed and developing nations has dec
276、lined at a national level,income inequality within most nations has widened.Global trade is often blamed for creating downward pressure on wages and exposing domestic industries to global competition.However,technological advancement and innovation could take equal blame for reshaping many industrie
277、s at the expense of livelihoods.Second,in the dozen years since the GFC,as countries have become more inward-looking and both tariffs and nontariff barriers to trade have become more commonplace,supranational organizations such as the World Trade Organization(WTO)have struggled to promote open marke
278、ts and free trade.Larger economies have often found it easier to set up their own regional trade blocs.After the U.S.pulled out of the Trans-Pacific Partnership in 2017,Japan led the signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership(CPTPP).In 2020,China took the le
279、ad in the creation of the 15-nation Regional Comprehensive Economic Partnership(RCEP)in Asia.While these blocs still promote free trade within regions,they dont necessarily promote global free trade,and the alliances are perhaps as much political as they are economic.Third,key events over the last t
280、wo decades have underscored some of the drawbacks to greater financial integration and complex global supply chains.Populists on both the left and the right have railed against what they deem to be the dangers of globalization,sometimes blaming other countries and people for domestic problems.The gl
281、obal financial crisis inflicted financial losses and economic pain on families around the world who felt very removed from the U.S.housing market or American financial institutions.The European sovereign debt crisis of 201112 wreaked widespread damage throughout Europe,showing the danger of pursuing
282、 a common currency project without a strong central fiscal policy.The 2011 Japanese Tohoku earthquake and tsunami disrupted global supply chains.More recently,the pandemic revealed the vulnerability of all economies to foreign-sourced supplies of key inputs and commodities.Russias invasion of Ukrain
283、e has underscored the risks to countries that depend on one region or country for vital supplies.In the coming decade,climate policy could become a particularly thorny issue in the larger debate about globalization.As governments adopt more stringent decarbonization standards,new barriers to trade c
284、ould emerge.Beyond climate,social and governance issues could spark similar global battles.The global economy will be shaped for decades to come by the extent to which globalizations costs appear to outweigh its benefits from the perspective of policymakers,citizens,companies and market participants
285、,among others.We see three possible scenarios for how globalization might evolve.In the following sections,we explore four key issues related to innovation;the energy transition;growing wealth and regional demand;the USD and capital markets that investors should consider in thinking about the future
286、 of globalization.Three possible paths forwardThe current state of globalization is a single global economy that is fraying at the edges.Resistance to a“one world”framework has steadily increased along political lines as countries seek greater protectionist measures.Going forward,collaboration in tr
287、ade,economics and finance could take several different paths.For this analysis,we outline three potential outcomes:Globalization renewed:International organizations again take the lead in global collaboration on trade and regulation,keeping globalization on track(albeit at a slower pace than in the
288、late 20th century).Global issues,such as tackling climate change or addressing global health challenges,prompt global cooperation.Trade barriers continue to fall,and a recognition of economic mutual interests eclipses nationalistic impulses.A multi-polar world:This is the most likely outcome,in our
289、view.International cooperation continues,but political and cultural alignments lead to the formation of a few large core trading blocs.These new blocs draw in other countries based on what they perceive to be their national interest.One potential structure could have the U.S.and Western Europe in on
290、e bloc and China and Russia in another.Meanwhile,other countries and regions,such as emerging economies in Southeast Asia,Latin America and the Middle East,opportunistically trade with both sides.This would dictate the flow of trade,technology and investment,and create a less efficient global econom
291、y as multiple technology standards emerge.Countries wont stop trading,but what they trade may shift.We could also see that innovation and cooperation to solve global problems,such as climate change,may bind nations together in a multi-polar world.The future of globalizationJ.P.Morgan Asset Managemen
292、t 33Geopolitical alliances are just one dimension of this multi-polar world.It could also be shaped by the concentration of consumer power,with a growing number of emerging economies becoming more dominant.In this scenario,multinational companies would continue to invest directly in these growing ma
293、rkets and rely less on servicing them from offshore locations.Full fragmentation:Cooperation falters with further fragmentation in production and distribution.Under this scenario,globalization unwinds as nations emphasize domestic production of goods and services and increase the use of tariffs and
294、other barriers to trade,even among countries that are politically aligned.Immigration is generally discouraged.This would imply both higher costs and lower efficiency,and by reducing economic relationships among nations,fragmentation could lead to greater international conflict.Which scenario unfold
295、s,and how,could depend on the answers to a handful of key questions:How will the next wave of innovation affect tradingpatterns?Innovations in information and communication technology have allowed internet,mobile communications and software-enabled companies to decentralize goods production and supp
296、ly chains,and exploit their comparative advantages on a global scale.In the future,innovation may lead to less global trade in goods but a stronger network for globalized services.It could benefit companies rich in capital at the expense of those reliant on low cost labor.Politics and policies may r
297、estrict trade in goods,but because of new technologies,services could flourish in an increasingly digital world.Technological adaptation has already changed the way goods and services are traded.It has also contributed to the decline of goods and the rise of services as a fraction of total trade.Glo
298、bal trade in goods increased by 7.6%per annum between 1990 and 2005.But from 2005 to 2020,that growth rate more than halved(Exhibit 2).The digitization of goods and the replacement of local IT infrastructure with cloud services contributed to that decline.Meanwhile,over the same latter 15-year perio
299、d,trade in digital services grew almost twice as fast.(To be clear,digital platforms,data processing and improvement in logistics and transport have helped both types of trade by reducing friction in the value chain and easing transaction costs,with a correspondingly positive effect on trade activit
300、y overall.)4“Globalization in transition:The future of trade and value chains,”McKinsey Global Institute,January 2019.In recent years,services trade grew almost twice as fast as goods tradeExhibit 2:International trade0550.00.51.01.52.02.53.03.50507091113151719Trade in services(LHS)Trade
301、in goods(RHS)Trillions of USD,annualSource:UNCTAD,J.P.Morgan Asset Management;data as of June 2022.While the impact of the next wave of innovation is less clear-cut,it should support the continued growth in services trade over goods.Looking at a slightly different period 2016 to 2022 international b
302、andwidths,or the capacity of all internet exchanges globally,increased almost sixfold in total.Those gains illustrate how further progress in mobile communications technology and broadband expansion continue to pave the way for new markets and experiences,such as autonomous driving and the Internet
303、of Things.The continued growth of services supports our outlook:An evolving rather than unraveling global economy and a multi-polar world are the most likely scenario for the future of globalization.Innovation could have yet another influence on trade in goods when it comes to labor,one that favors
304、a fragmentation scenario:Robotics,3D printing and virtual reality,for example,give companies more flexibility.As businesses look to diversify their supply chains,it could lead to a shift in production away from areas dependent on cheap labor.However,the economic incentive to seek out the lowest marg
305、inal cost of production could be achieved through better technology rather than low wages.Such a shift would favor those companies with more capital and advanced technology.The economics of industrial robots has improved significantly,lowering the cost of automation vs.the cost of labor (Exhibits 3
306、and 4).As a result,global supply chains could fragment,becoming more regional or even national.McKinsey estimates that robotics alone could reduce global trade between USD 1.5 trillion and USD 3 trillion annually by 2030.4 Globalization will evolve but not unravel34 2023 Long-Term Capital Market Ass
307、umptionsAutomation costs have dramatically fallen vs.the cost of laborExhibit 3:Global annual installation of industrial robotsExhibit 4:Cost of automation005006001011 1213 14 15 1617 18 19 2021 22 23 24ForecastThousands of unitsLaborRobotics050002005201020152020Inde
308、x of average robot prices and labor compensationin manufacturing in U.S.,1990=100Source:IFR,J.P.Morgan Asset Management;data as of June 2022.Source:CBO,EIU,IFR,McKinsey,J.P.Morgan Asset Management;data as of June 2022.How will the energy transition unfold?The transition to clean energy will also hav
309、e a significant impact on supply chains and trade volumes.Thats because the requirements of an ecosystem based on renewable energy differ profoundly from one based on fossil fuels.Solar parks and wind farms require significantly more material and mineral inputs in construction than fossil fuel power
310、 generation.For instance,replacing a coal-fired power plant with offshore wind power requires six times the amount of mineral commodities(copper,zinc,nickel,chromium and rare earths);for a gas plant,its 13 times more.In addition,building new gridlines to connect the worlds electricity supply and dem
311、and will require significant amounts of copper and aluminum(Exhibit 5).The transition to electric vehicles(EVs)presents similar challenges.While EVs are in some ways simple machines with only a sixth of the moving parts of a traditional combustion engine,their production requires six times as many m
312、inerals(lithium,nickel,cobalt,manganese and graphite).Reducing greenhouse gas emissions,either through power generation or EVs,will make the economy less fuel intensive and more materials intensive.As a result,companies will reconfigure their supply chains and new trade patterns will evolve.This sug
313、gests the potential for a multi-polar but in many ways still globalized economy.For example,some economic integration will be required to supply manufacturers with the necessary minerals and metals for wind power,updated energy grids and EV production.Building solar parks,wind farms and electric veh
314、icles requires substantial mineral inputsExhibit 5:Minerals used in vehicle and electricity constructionCopperNickelManganeseCobaltCopperNickelManganeseCobaltZincRare earthsRare earthsGraphiteLithiumOthersChromiumMolybdenumSiliconOthersKg/vehicleKg/MW03,0006,0009,00012,000 15,000 18,000Ofshore windO
315、nshore windSolar PVNuclearCoalNatural gas0500Electric carConventional carSource:IFR,J.P.Morgan Asset Management;data as of June 2022.The future of globalizationJ.P.Morgan Asset Management 35The U.S.Inflation Reduction Act represents a meaningful commitment to climate goals but with a clea
316、r bias for sourcing or processing minerals needed for EV battery production either locally or from key trading partners.Such a stance binds some nations together and limits access for others,fostering a more multi-polar world.5 How will growing wealth in developing economies affect trade patterns?Th
317、e convergence in wealth levels and the cultural assimilation that has taken place among developed and emerging economies have created new markets and many new consumers.Consumers in emerging economies represent a growing source of demand for everything from cars to social media to financial services
318、.If local supply can meet local demand,it could reduce the need for cross-border trade,creating a more fragmented global economy.To the extent that nationalistic political agendas further restrain cross-border trade,that fragmentation could deepen.Such a shift would be gradual,though.Over the near t
319、erm,multinational companies could still invest and operate in a broad range of countries to capture profits in growing consumer markets.The relative freedom or constraints on cross-border trade have important implications for supply chains.For example,the distribution of motor vehicle production glo
320、bally has mirrored the distribution of sales over the past 20 years.5 From 2024 on,EVs will not be eligible for tax credits if the battery components are made by a“foreign entity of concern,”including Russia and China.The share of motor vehicle sales in both the U.S.and Europe has fallen during this
321、 period,matching a decline in these regions share of production.At the same time,a sharp rise in sales in China and India has been matched by a rise in production(Exhibit 6).This evolution in demand(combined with greater use of automation in production)reinforces the shift in trade activity toward b
322、ecoming more regional and less global.While companies may choose manufacturing based on proximity to consumers,growth in the services sector will be determined by technological infrastructure and the changing demands of consumers with rising wealth in new markets.Can the dominant U.S.dollar be overt
323、hrown?Global financial markets have become increasingly integrated as governments compete to attract international capital.This integration will not be easily unwound.The need for capital and the U.S.dollars pivotal role in the global financial system should limit any potential fragmentation.Despite
324、 financial market integration,we note that global capital flows have yet to recover to pre-GFC levels.Direct investment and portfolio flows were relatively stable up until 2017.However,other capital flows have dropped,perhaps because tighter regulatory policies encouraged greater domestic lending an
325、d the development of local debt markets in the emerging world.More recently,investment flows have started to recover,even if they remain some way from pre-GFC levels(Exhibit 7).Motor vehicle sales have generally tracked car production over the past 20 yearsExhibit 6:Motor vehicle sales and productio
326、n2005Sales201520212005Production20152021%of global total0%10%20%30%40%UnitedStatesEuropeJapanSouthKoreaChinaIndiaBrazilUnitedStatesEuropeJapanSouthKoreaChinaIndiaBrazil0%10%20%30%40%Source:International Organization of Motor Vehicle Manufacturers,J.P.Morgan Asset Management;data as of June 30,2022.G
327、lobalization will evolve but not unravel36 2023 Long-Term Capital Market AssumptionsGlobal capital flows have yet to recover to pre-financial crisislevelsExhibit 7:%of global GDPForeign direct investmentPortfolio investmentOther investment-5%0%5%10%15%20%25%2002 2004 2006 2008 200162018 2
328、020Source:IMF,J.P.Morgan Asset Management;data as of August 30,2022.At the core of financial market integration is the U.S.dollar,which plays a key role as a facilitator of globalization.No currency is more dominant in global trade,global payments or global debt,and we dont foresee this changing.The
329、 dollar is by far the leading reserve currency,with no close rivals.This is likely to be the case as long as the stability of the U.S.economy remains unmatched.However,in the coming decades,while the dollar may not lose its dominant position,it may be eroded as market participants seek to reduce the
330、ir reliance on a single currency in an increasingly multi-polar world.In an extreme(if unlikely)scenario,there might be no dominant currency and multiple payment systems.Could the renminbi(RMB)challenge the dollar as the global reserve currency?Not within our forecast horizon.Although Chinas share o
331、f global foreign exchange reserves(2.9%)has increased sharply in the last four years,it remains a fraction of the U.S.dollars(58.9%)and less than the combined holdings of the Australian and Canadian dollars in foreign exchange reserves(4.4%)(Exhibit 8).For the RMB to become a reserve currency,signif
332、icant changes would be needed in Chinas financial infrastructure.At minimum,they would require the liberalization of the current account and the removal of restrictions on cross-border capital flows,enabling market forces to determine the currencys value.Greater investor confidence in Chinas rule of
333、 law and legal system would also be necessary.We think the risk that the RMB overtakes the USD in the next 10 to 15 years is very low.Chinas share of global FX reserves has risen sharply,but the U.S.dollar faces no close rival as a global reservecurrencyExhibit 8:U.S.dollar and Chinese RMB share of foreign exchangereserves USD(LHS)Allocated global reserves,%of totalCNY(RHS)0.0%0.5%1.0%1.5%2.0%2.5%