balloon-inflation

Investors can expect higher rates of inflation over the next seven years, finds a report by Fiera Capital Corporation.  Further, the global economic focus will shift from deflationary fears toward inflationary pressures. U.S. inflation is predicted to rise 2.5%.

And when it comes to growth, an increase in consumer demand will spur growth levels, with economies expanding across most geographies. Growth in the U.S. is expected to approach 3%, on a par with its historical average.

Read: Monetary policy to be data dependent: BoC

“Over the last seven years, the global economy has taken significant strides to recover from the 2008 credit crisis,” says Francois Bourdon, global CIO. “Financial markets have been driven by extraordinary actions from central banks, a thirst for yield, falling productivity and a prolonged expansion characterized by very low inflation.”

He adds, “Following this unusual period, we expect the next seven years to be characterized by a return to a more traditional business cycle, in both central bank activities and in productivity. An aging population should continue to drive investors toward income, and politics are likely to have a greater impact than usual.”

Additional financial market factors

  • Valuations may normalize toward 2024, with interest rates expected to rise to the 4% to 5% range as we escape progressively from the current unusual period of emergency interest rates and low inflation.
  • Given lower levels of central bank activity, liquidity will be reduced progressively.

5 key global drivers

The report outlines trends that may influence and characterize the investment environment over the next seven years.

  • Productivity is expected to improve from current levels, as local economies leverage advances in technology, including artificial intelligence and the increased use of robots.
  • An aging population will have a negative impact on growth, while the higher dependency ratio will spur inflation.
  • While a recession is not expected in the next couple of years, one could be expected — along with an accompanying recovery — within the next seven years, if it follows previous cycles. The path toward recession will likely come from a tightening of credit from central banks as the current cycle becomes more mature and inflation pressures warrant higher interest rates.
  • The role of central banks will decrease over time as the global economy normalizes.
  • Governments are expected to relax their focus on regulation in order to improve efficiency and productivity. However, protectionist temptations and the ongoing focus on nationalism among politicians of various affiliations is likely to continue.

How to structure your portfolio

For investors seeking income, non-traditional asset classes such as core agriculture, core infrastructure and private lending may offer compelling performance, notes the report. Also, preferred shares and high-yield bonds have the potential to perform well within traditional income options.

For investors seeking capital gains, private equity and long-short equity are expected to provide better returns, adds the report. In traditional equity markets, large-cap emerging and large-cap frontier are expected to outperform large-cap developed markets and mid-cap global asset classes. 

Also read:

Investors want more from advisors: survey

‘Epic fail’ distracts investors from key BoC policy initiative

Expect ‘significant’ increase in bond yields: economist

Originally published on Advisor.ca
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