Barings Multi Asset Group steps back from the day-to-day movements on our screens to consider the secular issues driving markets over the longer-term.
Forecasting the Next Decade: Navigating a Low Return World
Revisiting our long-term forecasting
Each year, Barings’ multi asset group steps back from the day-to-day movements on our screens to consider the secular issues driving markets over the longer term.
Factors such as demographics, productivity trends and the quality of a country’s governance sit outside the normal one year forecasting period used by many analysts. Yet these are tectonic plates which are likely to move economies and markets over the long term.
A significant research effort goes into analyzing, reviewing, and debating our ten-year forecasts. The exercise makes us more focused and disciplined as investors. In particular, when moments of extreme crisis or exuberance hit the market, these forecasts serve as an extremely useful anchor point on reality.
We combine these long-term drivers of markets with today’s valuations to produce total return forecasts over the next ten years. This is a three-stage process:
Step one: Quantification of specific secular trends. This might include productivity and demographic trends as well as our assessment of the likely evolution over the next ten years of financial repression mechanisms such as quantitative easing. We are aided in part by looking back at prior episodes to determine how long the current state of affairs could last, as well as our own analysis.
Step two: We convert economic views into market views. This will reflect our judgement of how well certain relationships will hold. For this year, we have also introduced ESG scores for individual countries on topics such as the rule of law and the degree of corruption to help convert a given economic view into a view on country by country risk premiums.