Medium and long term expected returns
By
👤Amundi
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Asset Class Views
Our approach to expected returns forecasts is model driven. We break down asset class dynamics into a long term component (or trend/fair value), mainly related to macroeconomic variables and a medium-term component, explained by economic and financial cycles. Short-term misalignments, linked to market divergence are not considered here for the purpose of this analysis, but are included while noting our tactical asset allocation recommendations. Consequently, in this document we focus on long term trends and medium- term developments. In particular, when we forecast the long-run trend we define asset class prices in equilibrium (or steady state) on the assumption that all other influencing variables are in equilibrium. On top of that, we detect swings based on medium-term market mispricing (i.e. over/under valuation) and risk premia. As an example, the following chart shows how we break down the equity price into its main components:
By
👤Amundi
