By Davide Barbuscia
NEW YORK (Reuters) - U.S. firm Capital Group, one of the world's largest investment management companies which manages about $2.2 trillion in equity and fixed income assets, said the beating that markets took last year made it more bullish on long-term stock and bond returns.
"After a tumultuous year that saw double-digit declines in most equity and fixed income asset classes, our 20-year return assumptions are higher across the board," a committee of analysts and portfolio managers said in a report.
They expect U.S. stocks to give an annualised return of 7.2% over the next 20 years, up from their 5.8% forecast at the end of 2021. Return expectations for U.S. government bonds with maturities of five to 10 years more than doubled to 3.4% from 1.6% in 2021.
Financial markets took a beating last year as global central banks tightened monetary policy aggressively to fight inflation, hiking interest rates and feeding worries of a possible global recession.
The U.S. Federal Reserve is expected to maintain its 2% inflation target, but the path of inflation will likely remain turbulent, said Capital Group.
"We do expect the Fed to be successful over time in getting inflation under control," Maddi Dessner, Head of Global Asset Class Services at Capital Group, told Reuters in an interview.
"As the Fed is removing accommodation, and they may need to do that even more quickly than we expect, we think that there will be additional volatility around that inflation number," she said.
The U.S. dollar is expected to depreciate over the long term, boosting returns from emerging markets stocks to 9% - the highest expected return among asset classes, up from a previous 6% long-term forecast.
Emerging markets are seen as giving the most attractive returns on the debt side too, at 7.6%, with local currency debt returns offsetting potential defaults in U.S. dollar debt.
Improved returns for emerging markets assets outpaced lower growth expectations for China, where estimates for real economic growth for the next 20 years were lowered to 3% from 4%.
The report cited several factors for that forecast including "concerns about the stability of policies affecting private-sector investment, and a slow property market."