Today, and over the foreseeable future, a series of events — call them global megatrends — will have a profound impact on the world economy. Each issue of Point of View will share insight into these trends and how the institutional investment community is preparing to address them.
Institutional investors are struggling to meet liabilities; searching for growth and yield in an economic environment where inflation erodes whatever modest growth prospects do exist in much of the developed world. (See “Inflation Stymies Growth in Developed World.”) As a result, investors are examining secular themes in an attempt to find new sources of return, while further diversifying their portfolios to offset any increase in portfolio risk. Among the current opportunities on investors’ radar screens are the opening of previously closed or restricted markets, such as companies in mainland China and frontier markets, as well as nontraditional assets, such as global infrastructure.
Frontier markets have experienced strong economic growth in recent years and are expected to continue to outpace developed and emerging markets for the foreseeable future. Although there’s no strict definition of frontier markets, an allocation to these countries typically provides expanded exposure to under-represented regions such as Eastern Europe, Africa and the Middle East, as well as a broadened opportunity set in Asia and the Americas.
Despite collectively lower estimates of China’s anticipated economic growth in the coming years, the country is still expected to be the single-largest contributor to growth in global gross domestic product.
Overall returns from global listed infrastructure securities are expected to outpace the performance of the broader equity universe, due to a strong income component.
Inflationary pressure is expected to keep real economic growth in the low-single digits throughout much of the developed world in the coming years.