The global economy will experience 2.4% real average annualized growth
over the next five years, according to Northern Trust’s Capital Market
Assumptions five-year investment outlook, a report that informs the
investment decisions for the $1 trillion managed by the firm. While
acknowledging that equity valuations are high in developed markets, the
forecast projects that steady economic growth along with low inflation
will keep stocks attractive since these conditions are conducive to
strong earnings and support high valuations. The highest regional
average annualized return is forecast for emerging markets, at 8.4%,
followed by: 7.2% for Europe; 6.6% for the U.K.; 6.0% for Japan; and
5.9% for the U.S.
The outlook does not foresee a bond bubble given the firm’s expectation
that interest rates will remain low and increase gradually and modestly,
as well as less than general market expectations reported by Bloomberg.
Northern Trust expects rates on 3-month bonds from the U.S., Europe,
Japan, and the U.K., to increase to a range of 0.0% (Japan) to 2.1%
(U.S.). The firm’s 10-year bond expectation ranges from 0.5% (Japan) to
The complete forecast is based on six investment themes identified by
Northern Trust. One of them, "Waiting for Monetary Godot,” refers to a
widely held belief among investors that monetary policy will normalize
as global growth remains subdued and inflation stays below central bank
targets. However, Northern Trust finds this outcome highly unlikely. "We
may never see central banks return to traditional policies and don’t
expect a return to pre-financial crisis levels over our forecast
horizon,” said Northern Trust Chief Investment Officer Bob Browne. "A
successful unwinding of huge central bank balance sheets, which is
likely to remain larger than historical levels, will be the focus.”
In citing Brexit and the U.S. presidential election as examples of
"populist earthquakes” cited in its "Popular Catharsis” theme, the
forecast notes that such events will not derail another of the six
themes – "Entrenched Growth” over the next five years. "The rise of
global populism has not dramatically changed the global economic
outlook,” Northern Trust Chief Investment Strategist Jim McDonald said.
"During this political and economic transition investors will show
patience and reward those leaders who drive change.”
Wayne Bowers, CIO and CEO for Northern Trust Asset Management in Europe,
Middle East and Africa said the report’s theme of "Entrenched (Global)
Growth” and relative stability "is based on demand being constrained by
natural regulators such as high debt burdens, aging developed market
populations and transitioning emerging market economies. These factors,
along with regulatory relief and persistent low inflation, will continue
to allow easy monetary policy, and stop global markets from overheating.”
Northern Trust’s capital market assumptions are the firm’s
forward-looking, historically aware forecasts for global economic
activity and financial market returns. These forecasts drive its
five-year asset class return expectations and asset allocation decisions.
Developed by the firm’s top investment professionals, this framework
serves as the foundation for the solutions the firm provides to
professional and individual investors worldwide.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of
wealth management, asset servicing, asset management and banking to
corporations, institutions, affluent families and individuals. Founded
in Chicago in 1889, Northern Trust has offices in the United States in
19 states and Washington, D.C., and 22 international locations in
Canada, Europe, the Middle East and the Asia-Pacific region. As of June
30, 2017, Northern Trust had assets under custody of US$7.4 trillion,
and assets under management of US$1.03 trillion. For more than 125
years, Northern Trust has earned distinction as an industry leader for
exceptional service, financial expertise, integrity and innovation.
or follow us on Twitter @NorthernTrust.
Northern Trust Corporation, Head Office: 50 South La Salle Street,
Chicago, Illinois 60603 U.S.A., incorporated with limited liability in
the U.S. Global legal and regulatory information can be found at https://www.northerntrust.com/disclosures.
About Northern Trust Asset Management
Northern Trust Asset Management is a leading global
asset management firm serving institutional and individual investors in
29 countries. Our robust investment capabilities span all markets and
asset classes, from passive and risk-factor to fundamental active,
multi-asset class and multi-manager strategies, delivered in multiple
vehicles. As of June 30, 2017, Northern Trust has $1.03 trillion in
total assets under management. For more information, please visit our website
or follow us on Twitter @NTInvest.
Northern Trust Asset Management comprises Northern Trust Investments,
Inc., Northern Trust Global Investments Limited, Northern Trust Global
Investments Japan, K.K., NT Global Advisors, Inc. and investment
personnel of The Northern Trust Company of Hong Kong Limited and The
Northern Trust Company.
This material is directed to eligible
counterparties and professional clients only and should not be relied
upon by retail investors. The information in this material reflects
prevailing market conditions and our judgment as of this date, which are
subject to change. Past performance is no guarantee of future results.
All material has been obtained from sources believed to be reliable, but
the accuracy, completeness and interpretation cannot be guaranteed. The
information does not constitute investment advice or a recommendation to
buy or sell any security and is subject to change without notice.
For important information relating to hypothetical returns and model
forecasts please refer to the disclosure
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