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Seeking potential
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CAPITAL MARKET ASSUMPTIONS

MARCH 2025 • Document for professional investors only

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Capital Market Assumptions Amundi Investment Institute

WHAT’S NEW

Capital market assumptions:

what’s new in this year’s edition
Given the current geo-economic and technological shifts, along with more frequent extreme climate events and a
slow transition, the next 3 to 5 years will be challenging for economic projections. This uncertainty affects financial
markets, increases volatility and influences long-term economic patterns like inflation, with contrasting effects.
This publication is based on data and insights as of end-December 2024 and relies on a quantitative framework.
While this approach provides discipline and consistent assumptions, it is inherently limited – particularly in today's
world – where structural shifts may emerge and influence the future for decades.
This does not prevent us from mentioning key topics that will shape the economy and markets in the future, but
due to their depth and complexity, these will require ad hoc studies that we will cover in upcoming publications.
Such topics include the potential watershed moment in Europe. Should the region respond decisively to possible
shifts in US trade and defence policies, it could unlock enormous potential – particularly if member states advance
plans for Capital Market and Banking Unions, ally on a more integrated industrial policy, and implement proposals
from the Draghi and Letta reports. Similarly, in China, recent institutional responses to internal imbalances and
external pressures (e.g., tariffs) might accelerate structural improvements.
In this year’s Capital Market Assumptions (CMA), the Amundi Investment Institute – in partnership with Amundi’s
Multi-Asset Solutions Teams – examines the impact of the significant game-changers currently at play and their
implications on expected return assumptions for over 40 asset classes over the next decade. Our themes range
from the rise of nationalism and increasing geopolitical fragmentation – exacerbated by the Trump era – to the
transformative effects of artificial intelligence’s adoption, global shifts in demographics between Developed and
Emerging Markets, and the resurgence of fiscal spending with potential impacts on long-term interest rate
dynamics. We also delve into the transformation that will enhance Europe’s competitiveness, and India’s growing
role as a global tech hub.
To account for these game-changers, and their macro and market implications, this year’s CMA includes:
 A revision of the macro long-term scenarios to incorporate a new socio-economic configuration, addressing
increasing geopolitical fragmentation and a more fragmented and delayed energy transition.
 A more granular assessment of the impact of artificial intelligence at a country level.
 An analysis of the implications of the macro backdrop on financial variables, with a fine-tuning of long-term
financial assumptions, particularly regarding interest rates and earnings growth.
 A reassessment of the risk-reward profile for equity, real assets and alternative investments, with a focus on
valuations and fundamentals in US equity.
 Continued enhancements to private asset modelling.
We have also enhanced the digital experience, which allows investors to navigate the full set of expected returns
data in various currencies, and to delve into the main assumptions driving our asset class modelling process.
I wish you a pleasant and informative reading,

Always get
the latest data
View the digital version of this
document, scan the code with MONICA DEFEND
your smartphone or HEAD OF AMUNDI
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New opportunities arise in a pivoting

world
In a pivoting world marked by rising nationalism and geopolitical
fragmentation, Europe has the potential to boost its competitiveness,
Asia is emerging as a global tech powerhouse, and the US will continue
to reap the benefits of artificial intelligence. While these trends point to
MONICA a favourable growth/inflation mix for the next decade, long-term
growth towards 2050 will face challenges from deteriorating
DEFEND
HEAD OF AMUNDI
demographic dynamics, high debt and climate impacts.
INVESTMENT INSTITUTE

Appealing returns
with some structural shifts
Structural changes – such as widespread AI adoption – and current
valuation levels imply a shift in the long-term ordering of returns with
implications for strategic asset allocation. Bonds are back, and equity
investing has to go beyond the US market into European and pan-
Asian equities. Returns for private assets will gradually normalise, but VINCENT
they will remain a key diversification engine. MORTIER
GROUP CHIEF
INVESTMENT OFFICER

The empowerment of Europe

One of the key themes emerging from this year’s Capital Market
Assumptions is Europe. The journey towards greater autonomy,
higher competitiveness and innovation will drive investment
opportunities that will make European markets eligible for an
increased emphasis within a strategic asset allocation.
PHILIPPE
D’ORGEVAL
DEPUTY GROUP CHIEF
INVESTMENT OFFICER

Diversification is back
Diversification is back as a key focus for investors: a less concentrated
equity approach, Emerging Market bonds and exposure to a liquidity
premium through private assets will chart the way forward.
JOHN O’TOOLE
CIO MULTI ASSET
SOLUTIONS

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 Annual Edition 2025

TABLE OF CONTENTS

KEY INSIGHTS

Key highlights on seeking potential in a pivoting world 5

THE BIG TAKE

The global economy's path in a fragmented world 10

Higher return potential with increased focus on diversification 14

Capital Market Assumption Table for liquid asset classes 17

Strategic Asset Allocation: Rising rewards from equities and real

assets
18

LONG-TERM THEMES

Demographics will shape future growth potential 22

The diverse economic impacts of artificial intelligence 24

The direction of long-term rates in an era of high debt 25

Empowering transformation in Europe 27

Equity sectors: a mix of Growth and Value to navigate AI, climate

change & geopolitics and deregulation
29

India: a rising global tech innovation hub 31

ASSET CLASS VIEWS

Deep dive into assumptions on liquid assets 33

Real and Alternative Assets in Focus 40

Sources and assumptions 43

Authors 45

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Capital Market Assumptions Amundi Investment Institute

KEY INSIGHTS

Key highlights on
seeking potential
in a pivoting world

Increasing geopolitical fragmentation,

Artificial Intelligence gains and the
climate transition are key forces
redesigning the global economic
backdrop.

While the global economy faces challenges from rising nationalism, job and business transformations
stemming from the widespread adoption of artificial intelligence, and long-term demographic shifts, the
ultimate outcome may not be negative for economies and markets. Instead, we see appealing and
improved returns for investors over the next decade compared to last year’s forecasts, with a greater
emphasis on diversification, particularly in equities. As some of the trends in our CMA (based on end of
2024 valuation levels) are accelerating and already starting to materialise in 2025, we also provide insights
on which of these trends are likely to endure over the long term.

Towards three decades of growth rebalancing in a more fragmented world

Artificial intelligence (AI)-driven productivity gains and more spread-out costs related to a
gradual implementation of climate policies are likely to support the growth-inflation mix in the
next decade. From the 2040s, potential growth will primarily be driven by demographic factors,
including the Emerging Markets (EM) which are still benefitting from a demographic dividend,
while chronic climate physical costs will increase across regions. This will lead to a compression
of the EM growth premium.

Game-changers in Europe will empower European transformation

Increased defence spending and investments to boost innovation and European competitiveness
will drive productivity gains when properly targeted on specific projects. While we have started
modelling some of these gains, the recent extraordinary fiscal push in Germany, the plan to
enhance defence at the EU level, and a potential ceasefire and reconstruction in Ukraine are not
yet factored into this year’s assumptions and could further lift European growth. Hence, we
believe that the rising appeal of European asset classes (equities, bonds and the euro) have room
to continue over the next years.

Bonds are back is reaffirmed, but be prepared for long-term rates uncertainty
Bonds are expected to remain appealing in both Europe and the US thanks to attractive carry,
providing a stable anchor for future asset allocations. Yet, investors should consider rising inflation
uncertainty stemming from geopolitical tensions and supply chain disruptions, food security and
increasing demand for resources deriving from the world’s technological transformation. These
factors, combined with higher expected public debt, could exert pressure on long-term rates.

Cover image | Five Vietnamese women harvesting water lilies in the Mekong river during flooding season. Vietnam. Photo by Abstract Aerial Art @Gettyimages

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Capital Market Assumptions Amundi Investment Institute

Appealing global equity returns supported by improving earning growth dynamics

We see appealing returns in equities for the next decade, as better growth prospects and AI-
driven productivity gains will improve the earnings trajectory. In our CMA, we anticipated some
rotations that are now materialising, with US concentration fading and a return of interest in
Europe and Emerging Markets. A greater focus on geographical diversification will be key, while
sector-wise we see long-term opportunities in Financials, Healthcare, Industrials and select IT.

Asia in focus in the tech race, with India set to benefit

We expect technological advancements to continue driving growth opportunities in the future,
with the theme broadening as adoption rises. Asia is rapidly emerging as a powerhouse in the
global tech landscape, particularly India, which should benefit from the tech rivalry between China
and the US. This is expected to drive appealing returns in EM equities, with Indian equity expected
returns at 8.2% for the next decade: the highest among the equity markets covered.

The rising need for portfolio diversifiers in a riskier world

Portfolio construction will have to address multiple challenges coming from concentration risk and
potential valuation resets in some areas, high uncertainty on long-term rate dynamics and
unstable correlations in an uncertain inflationary environment. These factors will increase the
demand for “portfolio construction diversifiers”. Private debt, Emerging Market debt and hedge
funds are the favourite candidates in this space.

Appealing returns for the next decade for an optimised 60-40 allocation
A more favourable growth/inflation mix for the next decade supported by the boost from artificial
intelligence, delayed costs for the energy transition and higher bond rates, translate into better
return prospects across the board which will lead the optimised 60-40 strategic asset allocation* to
deliver returns around 7% in USD and 6% in EUR.

* Diversified optimised allocation with a risk profile similar to a 60% global equity – 40% global bond, see page 18 for the ER for the
different optimised allocation.

2.6% ∼70% >7.5% ∼ 7% ∼20%

Expected average 70% of the 40 liquid Asset classes with the Expected return for a Expected allocation
world real GDP asset classes covered highest return diversified dynamic to real and
growth for the next in the CMA are potential for the next USD allocation alternative assets,
decade, with EM’s expected to deliver decade: global targeting a 12% with a preference for
growth premium returns above the private equity, Indian volatility range (6.8% private equity for
slowing from an past 20-year average, equity, EM equity ex with only liquid dynamic allocation
average 2.7% over largely due to China, EM equity, assets, 7.3% and private debt for
the past decade to improved bond global infrastructure, including real and moderate risk
1.8% for the next returns. China and European alternative assets). allocation.
one. equity.

Source: Amundi 2025 Capital Market Assumptions.

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Capital Market Assumptions 2025 Amundi Investment Institute
INFOGRAPHIC

Appealing long-term expected returns across the board

10-year expected returns in local currency, excluding alpha
Government Bonds Credit & EM Debt Equity Real & Alternatives
10-year expected returns in local currency

12%
10.4%

10%
8.2%
7.9% 8.0% 7.7% 7.9%
8% 7.5% 7.3% 7.3%
6.6%
5.9% 6.1% 6.0%
5.7%
6% 5.3%
5.0%
4.7%
4.2% 4.0%
4% 3.2%
2.9%

1.6% 1.7%
2%

0%
Japan Equity

Pac. ex-Jap. Equity

EM ex-China Equity

China Equity
UK Bond

Japan Bond

EMU Bond

China Bond

Gl .Real Estate

Gl. Private Equity

US Corp. IG

US Corp. HY

US Equity

Hedge Funds
Europe Equity

EM Equity
US Bond

Euro Corp. IG

Gl. Infrastructure

Gl. Private Debt

Euro Corp. HY

EM HC Debt

60-40 allocation returns are back, with higher potential from India Equity

a diversified Strategic Asset Allocation in USD

 Global Equity  Global Aggregate  EMBI & HY  Real & Alternatives  EM Equity

2004-2024 2024 CMA 2025 CMA

60-40 60-40 60-40 Diversified*

6.2% Historical
5.6% Expected
6.2%
Expected
7.3% Expected
Return Return Return Return

Source: Amundi CASM Model, Bloomberg. Simulations starting date is 31 December 2024. For additional information see ‘Sources and Assumptions’ at the
end of this document. The forecast returns are not necessarily indicative of future performance, which could differ substantially. Returns are nominal and
gross of fees, except private equity which is net of fees. EM HC debt, global infrastructure and hedge funds are in USD, all other indices are in local
currency. The expected returns consider the market beta and the alternative assets risk premium. The alpha return component generated by portfolio
management, strategy selection or specific value creation programs – that can be significant above all for real and alternative assets – is not considered in
any form. 60-40 allocation: 60% MSCI world total return in USD, 40% global aggregate bond index hedged in USD.
*The diversified Strategic Asset Allocation refers to the dynamic optimised allocation targeting a 12% volatility. For further details see article on page 18.

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Capital Market Assumptions 2025 Amundi Investment Institute
INFOGRAPHIC

Three portfolio construction themes for the next decade

Capital market lines derived from historical and expected risk-return payoffs for a
homogeneous set of representative liquid asset classes in local currencies

12.0%
3
Higher returns vs last
year’s CMA, with higher
volatility
10.0%

2
8.0% Seek balance with
10-year expected returns

portfolio diversifiers

6.0%
1
Bonds are
back reaffirmed

4.0%

2.0%

0.0%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Expected volatility
Last 20 years 2025 CMA - Next decade 2024 CMA

1 2 3
Bonds are back is Seek balance with Higher returns vs last
reaffirmed portfolio diversifiers year’s CMA, with higher
volatility
A core bond allocation will With both bonds and equities
be a key performance bringing higher returns, Equity returns are more
engine, particularly for investors will have to seek compelling compared to last
investors with a moderate risk balance by adding medium year’s CMA.
profile. volatility assets that exhibit
low to medium correlations Yet, compared to the past
To optimise opportunities, with bonds and equities. decade of strong and stable
consider flexible fixed income US market returns, we expect
approaches to leverage shifts Emerging Market bonds future outperformance to
in yield curves and actively and private debt will be come from European
manage duration exposure. key pillars in asset equities, Emerging Markets
allocation to balance the – which brings higher volatility
Government and high- overall risk allocation, – or from private equity, which
quality corporate bond particularly for moderate risk entails more complex risks.
returns are set to shine with profiles.
attractive carry, but expect
higher volatility.

Source: Amundi CASM Model. Data as of 31 December 2024. For additional information see ‘Sources and Assumptions’ at the end of this document. The
forecast returns are not necessarily indicative of future performance, which could differ substantially.

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 THE BIG TAKE

The global economy's path in a fragmented 10

world

Higher return potential with increased 14

focus on diversification

Capital Market Assumption Table for liquid 17

asset classes

Strategic Asset Allocation: Rising rewards 18

from equities and real assets

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 Capital Market Assumptions Amundi Investment Institute

Macro focus
THE BIG TAKE

The global economy's path in a fragmented world

With the world on the brink of significant structural changes, projecting the
long-term macroeconomic scenario for 2025-2050 presents unique What’s NEW
challenges. It is crucial to identify emerging trends while evaluating the
acceleration of existing ones. Key factors to consider include shifts in trade In our CMA central macro
relationships shaped by geopolitical developments, a more fragmented scenario for 2025 we
global landscape marked by rising nationalism, and major demographic incorporate:
changes such as declining fertility rates and a shrinking working-age
population. These trends may be counterbalanced by renewed migratory New socio-economic
flows, increased labour intensity through later retirement ages, and paths to include higher
enhanced productivity driven by a technological revolution. geopolitical
fragmentation and tariffs
Compared to the 2024 Capital Market Assumptions (CMA), we have revised
our long-term macro scenarios to factor in important expected changes in
terms of socio-economic developments, the climate transition, and the More fragmented and
impact of artificial intelligence (AI) on growth. delayed climate
transition
New socioeconomic paths
We introduced a new combination of socio-economic scenarios, moving
More granular
away from “a world that follows a path in which social, economic and
assessment of AI’s
technological trends do not shift markedly from historical patterns”1, impact at the country
adding complexity instead through different emerging paths. Regional level
rivalry becomes the dominant narrative, as nations increasingly prioritise
domestic and regional issues over global cooperation. This resurgence of
nationalism, driven by concerns over competitiveness and security, leads to
a focus on achieving energy and food security within regional confines,
often at the expense of broader development goals. Consequently,
inequality rises as resources are concentrated within regions, leaving
marginalised communities behind. In this starkly divided landscape,
investment in human capital is unevenly distributed, further exacerbating
disparities in economic opportunity and political power. This stratification is
evident both within and between countries, where high-tech sectors thrive
while local environmental policies primarily benefit affluent areas.
Meanwhile, the energy sector is diversifying, balancing investment in
carbon-intensive fuels with low-carbon alternatives, although the costs and
benefits are not equitably shared. Lastly, in a world where fossil-fuelled
development coexists with rapid technological progress, local As regional rivalries
environmental challenges like air pollution should be effectively addressed,
and geo-engineering is considered a viable option for sustainable intensify, we expect a
development.2 more fragmented and
Climate delayed climate
We are factoring in a more fragmented and delayed transition. In line transition.
with findings from previous years, the 2025 CMA is characterised by a
disorderly Net Zero transition, with both transition costs and especially
physical ones rising over the long term, although transition costs for the ALESSIA BERARDI
next decade will be lower compared to last year’s assumptions, as they are Head of Emerging Macro Strategy,
Amundi Investment Institute
deferred to the future.

1 Refer to SSP2 Shared Socioeconomic Pathways (SSPs) called “Middle of the Road”.
2 We have also included part of the SSP3 (“Regional Rivalry”), SSP4 (“A Road Divided”) and SSP5 (“Fossil-fuelled Development”).

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Climate transition: more fragmented and delayed

NGFS SCENARIO FRAMEWORK
AMUNDI INVESTMENT INSTITUTE
CENTRAL CLIMATE SCENARIO 2025 Disorderly Too little too late

HIGH
The Network for Greening the Financial
System (NGFS) framework remains the Fragmented
starting point for our scenario. Delayed
world
Transition
Climate
Changes in NGFS scenarios: The newly policy
released NGFS scenarios* are similar to

Transition risk
last year's, but the narrative indicates a
generally more disorderly transition,
introducing a new damage function that Consumer
significantly impacts GDP levels due to preferences Net Zero
2050
climate risk. (1.5°C) Below NDCs
2°C
2025 central scenario: a mix of the
Fragmented World (with a higher Current
Technology Low
probability compared to last year) and Demand Policies
Delayed Transition with limited Net Zero
efforts up to the mid-2030s, followed by a
LOW

Orderly Hot house world

faster acceleration to mitigate physical
costs as damage becomes evident. LOW Physical risk HIGH
Graphically, from 2024’s brown diamond,
risks move up as awareness of higher Extreme Gradual
weather changes in
physical risks grows and the delayed climate
events
transition leads to increased transition
costs. We expect policy and emissions
reactions to be gradual, with a modest rise Amundi Central Scenario 2023 Amundi Central Scenario 2024
in shadow carbon prices initially.
Amundi Central Scenario 2025

Source: Amundi Investment Institute, NGFS. NGFS is The Network of Central Banks and Supervisors for Greening the Financial System. NDC =
Nationally Determined Contributions. Discover more on NGFS scenarios at www.ngfs.net *NGFS scenarios released in November 2024.

A more granular and model-driven approach to the impact of artificial

intelligence. This year, we explicitly model AI-driven productivity at the
country level, (see the article on page 24) using the IMF preparedness index
(IMF AIPI) for differentiation. The IMF AIPI is used to establish the starting
point for each economy, while factors such as regulation, innovation
intensity, and capital availability (as indicated by IMF AIPI subcomponents) A more disorderly and
influence the peak and pace of productivity gains over time. delayed transition will
Our central scenario has some important macro implications: spread economic costs
A generally more disorderly and delayed transition will extend over a over time, but
longer timeframe, deferring economic costs and softening inflation
technological shifts and
peaks.
national security
Enactment of emission policies is more gradual, translating into modest
initial increases in carbon prices and investments in infrastructure to ensure concerns could trigger
energy transmission and grid stability are challenged by shifting policy renewed inflation
agendas that have to cope with the new geopolitical environment.
episodes.
While transition-driven inflation may take a backseat for now, the
technological transformation, amid national security concerns, might
represent a structural support for the demand for commodities, potentially ANNALISA USARDI, CFA
driving up prices. Food security policies, coupled with increasing climate- Senior Economist, Head of
related concerns, might cause food prices to come under pressure, with Advanced Economy Modelling,
Amundi Investment Institute
significant impacts especially on Developed Markets (DM).

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For food exporters, a rise in global food prices may trigger more protectionist measures by governments
aiming to favour domestic markets over external ones to shield consumers, ultimately contributing to a
further escalation of protectionism and supply chain disruption. Moving towards 2040, as pressures for the
transition mount, we see inflation deviating from targets in a more pronounced way, which will only be
partly offset by increases in productivity and technological progress. On average, we therefore expect the
inflation regime to remain supported above central banks’ targets by a relay of factors over the next three
decades (from 2025 to 2055), with temporary bouts of volatility, but remaining under control overall.
Long-term growth patterns remain driven by demographic and productivity trends. Asian tech
leadership will be a larger contributor to global growth in the future, while the demographic dividend
will benefit Africa the most.
Against a general backdrop of older and shrinking populations across several developed and emerging
countries (see the demographics infographic on page 22), the positive effects of the productivity gains
generated by adopting AI will temporarily limit the deceleration for the most demographically challenged
countries, especially around the mid-2030s to mid-2040s. Only those countries enjoying a positive
demographic dividend, such as India and Sub-Saharan countries, are able to grasp both the positive effects
of younger and more productive economies, enjoying higher sustainable potential growth for longer.
Asia's growth premium is likely to persist, fuelled by technological advancements that are reshaping
economies and creating substantial investment opportunities. With a strong commitment to innovation and
a young, tech-savvy population, the region is positioned as a leader in the global tech landscape. Asia is a
powerhouse in the technology sector, leading in various fields: manufacturing and supply chain technology
(China and Vietnam), semiconductor production (Taiwan and South Korea), fintech innovations and financial
inclusion (India), and e-commerce. In 2023, Asia accounted for 76.6% of World IT Goods Exports and 33% of
World IT Services Exports, with China and India respectively leading the two segments.
In the medium to long term, insufficient early efforts to mitigate climate risks will lead to increased chronic
physical costs across regions. This, combined with the waning impact of AI on productivity, will ultimately
shift potential growth to be primarily driven by demographic factors. Consequently, we expect a
deceleration in potential growth across Developed Markets and China, while Asian countries like India will
play an increasingly significant role.

Asia is rapidly becoming a powerhouse in the global tech landscape

Share of global IT goods exports IT goods exports by type

100% Republic of Korea
90% Philippines
Malaysia
80%
Singapore
70%
Japan
60% Taiwan

50% Hong Kong

Vietnam
40%
Asia
30% China
20% Thailand
Indonesia
10%
India
0%
0% 20% 40% 60% 80% 100%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023

China Hong Kong Taiwan Components & Misc. Final goods (e.g. mobile phones, PC)
Republic of Korea Singapore Vietnam
Malaysia Japan Thailand

Source: Amundi Investment Institute on UN Trade and Development (UNCTAD) data for select Asian countries in 2023. Latest available data for
Vietnam is 2022 (2023 Vietnam data point in the left chart uses the 2022 share as a proxy).

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INFOGRAPHIC

A transition with higher risks

Geopolitical and trade fragmentation with inequalities
Rising nationalism and regional rivalry dominate, leading nations to prioritise
domestic and regional issues over global cooperation. This results in increased
inequality, uneven human capital investments, and a focus on regional energy and
food security.

Climate delays
The transition to Net Zero is fragmented and delayed, with transition costs deferred
to the future due to more emission policies. However, supply chain disruptions and
higher protectionism may lead to prolonged higher inflation.

Demographics
Declining fertility rates and an ageing population should be counterbalanced by
migratory flows and later retirement ages. Countries with a positive demographic
dividend will experience higher growth for longer, while others will face a faster
deceleration.

Artificial Intelligence
AI-driven productivity gains vary by country, influenced by regulation and
innovation intensity. Prepared countries will see earlier benefits, while laggards
should catch up over time. A broader adoption will boost global productivity.

Growth and inflation paths

3.3%

2.3%
2.0%
1.7% 1.7%
GROWTH

Real GDP 1.4%

growth 1.1% 1.2% 1.1%
annual
average

US EA EM US EA EM US EA EM

3.1% 3.0%
2.7% 2.5%
2.2% 2.3% 2.4%
2.1% 2.2%
INFLATION

Inflation
annual
average

US EA EM US EA EM US EA EM
1st decade (2025-2034) 2nd decade (2035-2044) 3rd decade (2045-2054)
Source: Amundi Investment Institute, NGFS. Data as of 31 December 2024. US= United States, EA=Euro Area, EM=Emerging Markets. Simulations
include a review of the socio-economic paths due to a reset of international trade in a higher fragmented world with updates from the new SSP
and NGFS scenarios. They do not include specific plan on industrial policy changes, particularly for Europe.

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THE BIG TAKE

Higher return potential with increased

focus on diversification

Our 2025 macro scenario is characterised by a disorderly and fragmented We expect a more
energy transition that integrates secular trends and rising geopolitical
favourable outlook for
uncertainty, with important implications on asset class expected returns:
risky assets over the
 Improved growth/inflation mix: Overall, we see a more favourable
growth/inflation outlook for the next decade compared to last year’s next decade, with
assumptions, with higher uncertainty on inflation, which will affect asset private equity,
class behaviour, particularly bond volatility.
infrastructure and
 Across the board, expected returns are higher compared to last year,
European equity
with the median return in local currency across the 23 asset classes
analysed now at 6%, up from 5.5% in 2024. Expectations have been showing the strongest
revised upwards for riskier assets in particular: almost 70% of the risky potential.
asset classes covered (9 of the 13 among equity regional markets and
private assets) are now expected to deliver returns above 7%, compared
to a meagre 23% in last year's CMA assumptions. VIVIANA GISIMUNDO
 Private equity, infrastructure and European equity have shown the Head of Quant Solutions,
Multi Asset Solutions,
most significant improvements compared to last year's assumptions, Amundi
while only a few asset classes, namely China bonds and Euro high yield
credit, exhibit lower returns. This shift will offer opportunities for higher
returns in the Strategic Asset Allocation, as discussed on page 18.

10-year expected returns vs last year’s forecasts in local currency, excluding alpha
Government Bonds Credit & EM Debt Equity Real & Alternatives
12%
10.4%

10%
8.2%
7.9% 8.0% 7.7% 7.9%
8% 7.5% 7.3% 7.3%
6.6%
5.9% 6.1% 6.0%
5.7%
6% 5.3%
5.0%
4.7%
4.2% 4.0%
4% 3.2%
2.9%

1.6% 1.7%
2%

0%
Japan Equity

Pac. ex-Jap. Equity

EM ex-China Equity

China Equity
UK Bond

Japan Bond

EMU Bond

China Bond

Gl .Real Estate

Gl. Private Equity

US Corp. IG

US Corp. HY

US Equity

Hedge Funds
Europe Equity

EM Equity

Gl. Infrastructure

Gl. Private Debt

US Bond

Euro Corp. IG

Euro Corp. HY

EM HC Debt

India Equity

2025 Expected Returns 2024 Expected Returns

Source: Amundi CASM Model. Simulation starting date is 31 December 2024. For additional information see ‘Sources and Assumptions’ at the
end of this document. The forecast returns are not necessarily indicative of future performance, which could differ substantially. Returns are
nominal and gross of fees, except private equity which is net of fees. EM HC debt, global infrastructure and hedge funds are in USD, all other
indices are in local currency. The expected returns consider the market beta and the alternative assets risk premium. The alpha return
component generated by portfolio management, strategy selection or specific value creation programs – that can be significant above all for
real and alternative assets – is not considered in any form.

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 In fixed income, expected returns are slightly higher, with mixed

effects across markets due to varying assumptions. For the next
decade, we see slightly higher interest rate targets compared to last SCAN OR
year, together with upward-sloping yield curves. Cash rates have been CLICK TO
revised upwards for the US, EU and India. The impact of these revised VIEW
DIGITAL
yield assumptions is mixed: while there is higher carry on one side,
VERSION
expected capital gains are lower on the other. This, coupled with more
favourable valuations, results in some return improvement for US, UK
and Japanese government bonds, while EMU bonds remain unchanged.
In credit, we expect spreads to widen towards their long-term levels
particularly affecting high-yield bonds in Europe, while US credit
expected returns still see some improvements supported by
enhancements in the government bond component. Emerging Market
debt will remain an appealing asset class, with return expectations close
to 6%, the highest in the fixed income space. The fiscal U-turn in
Germany represents a change in the landscape for European bonds, and
euro yields are closer to their long-term norm and better positioned
from a return perspective.
 Equities benefit from solid and improved EPS growth prospects,
with an average expected return increase of 0.7% for the MSCI AC
World Index compared to last year’s assumptions. This improvement
is mainly due to stronger earnings growth forecasts in Developed
Markets. EM EPS growth remains steady, as the effects of commodity
prices are complex, and AI-driven productivity gains are initially less
significant. Within DM equities, Europe shines with improving earnings
prospects and more appealing valuations as of December 2024. In the
US, although valuations have worsened compared to last year, the
increase in EPS more than offsets the negative impact of stretched
valuations, leading to some improvement in expected returns. Similarly,
expected returns also improved across Emerging Market equities, albeit
to a lesser extent in India where valuations are more expensive
compared to last year. Overall, better return prospects for Europe and
Emerging Markets should favour a rotation towards these markets,
which has already started in the first quarter of 2025, and we believe
this has room to continue in the future.
 Real and alternative assets are also more appealing. Private debt
remains the most appealing asset class on a risk-adjusted basis, with
returns far above those expected in high-yield credit. Private equity is
expected to be the only asset class to deliver double-digit returns, with a
1.5% increase on last year. This revision is primarily driven by higher
expected returns in public equity and improved assumptions regarding
private equity value-added (see the article on page 40). Global
infrastructure returns have also significantly improved to almost 8%,
driven by long-term demand in the energy and data sectors. Real estate
projections have risen close to 6%, supported by higher nominal GDP
assumptions and a return-to-office culture. Finally, hedge funds are
expected to deliver slightly below 6% thanks to higher cash returns
bolstered by rising real rates.

Notwithstanding the enhanced return prospects for a traditional 60% global equity and 40%
global aggregate bond allocation, heightened volatility from risks related to geopolitical
developments, market concentration, and climate change require a combination of traditional
and non-traditional asset classes to navigate these complexities, and to take advantage of
different correlation characteristics.
JOHN O’TOOLE
CIO Multi-Asset Solutions, Amundi

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Capital market line: an upward shift versus last year

Compared to last year, the 2025 capital market line (CM line) – based on our comprehensive asset class
coverage, including real and alternative assets as well as Emerging Market equity – has steepened and
partially shifted upward. This change is driven by higher expected returns across the board, particularly in
equities and private assets.
Cash and government assets continue to serve as a stable anchor in the risk-return trade-off, thanks to the
support from carry, notwithstanding the higher interest rate volatility over the horizon. Bond index volatility
results from the combination of two effects. First, higher interest rate volatility increases the risk for bonds.
Second, the market risk is dampened by the lower expected duration of market cap indices amid higher
expected interest rates levels. This is particularly evident for the UK, Japan, and France indices.
In the medium risk spectrum, hedge funds, EM bonds and global private debt remain the most appealing
asset classes. By contrast, high yield credit offers only marginal return improvements compared to the
investment grade segment, which does not compensate for the higher risk.
In the liquid space, equities present a diverse landscape, with expected volatility ranging from 15-20% for
Developed Markets to over 25% for equities in India and China. Emerging Market equity, and European and
Pacific ex-Japan equities can help enhance returns, especially as US equities appear less appealing from a
return perspective (positioned below the market line). Regarding EM equity, we anticipate potentially higher
volatility due to transition uncertainties and US policies.
Finally, in private assets, global private equity along with infrastructure investments can also help to
enhance expected returns and provide diversification benefits, though these investments come with
liquidity and complexity risks that require specific technical expertise.

10-year expected returns vs expected volatility* scatter plot in local currency,

excluding idiosyncratic alpha

12%
Attractive asset
classes with high
volatility Global Private
Equity

10% Attractive asset

classes with
medium volatility
EM ex-China
10 year Expected Returns Geometric

Gl. Infrastructure EM Equity

8% India Equity
Gl. Private Europe Equity
Debt Pac. ex-Jap.
Equity China Equity
EM HC Debt Japan Equity
6% Hedge Funds US Equity
US HY
US IG Global Real Estate
We expect the capital
US Bond UK Bond market line to shift
4%
Euro HY slightly upwards and
US Cash
Euro IG steepen compared to
EMU Bond last year.
2%
China Bond
Euro THOMAS WALSH
Cash Japan Bond Senior Quantitative Analyst,
Multi Asset Solutions, Amundi
0%
0% 5% 10% 15% 20% 25% 30%
Long-Term Expected Volatility

Govies Credit &EM Debt Equity Real & Alternative Assets CM Line 2025 CM Line 2024
Source: Amundi CASM Model Data as of 31 December 2024. * Expected volatility for alternative assets is derived from unsmoothed return series. Hence,
this measure of volatility will be different from the one obtained from realised IRR. For additional information see the ‘Sources and Assumptions’ section at
the end of this document. The forecast returns are not necessarily indicative of future performance, which could differ substantially.

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investment services providers and professional
Capital Market Assumptions Amundi Investment Institute

Capital Market Assumptions

Details on expected and historical risk return measures for liquid asset classes
Average
Average Annualised
Duration Annualised
GEOMETRIC 2004-2024 2004-2024
ARITHMETIC 10-year 10-year
Historical Historical
Simulated Simulated
Average 5-year 10-year 10-year Returns Volatility
Volatility CVaR 99%
Assets in local currency Reference Index next 10 Expected Expected Expected (annualised) (annualised)
years Returns Returns Returns

Cash

Euro Cash JPCAEU3M Index 0.2 2.0% 2.1% 2.1% 1.0% 1.6% 1.4% 0.9%

US Cash JPCAUS3M Index 0.2 3.4% 3.3% 3.2% 0.9% 0.8% 2.2% 1.0%

Government Bonds

US Bond JPMTUS Index 5.8 4.7% 4.2% 4.3% 5.1% 10.9% 2.7% 5.5%

UK Bond JPMTUK Index 8.8 5.5% 4.7% 4.9% 6.2% 13.2% 2.8% 7.9%

Japan Bond JPMTJPN Index 8.8 1.3% 1.6% 1.6% 3.0% 6.1% 1.0% 2.7%

Emu Bond - Core JPMTWG index 6.7 2.0% 2.3% 2.4% 4.4% 9.4% 2.2% 5.1%

Emu Bond - Semi Core (France) JPMTEUFR Index 7.0 3.1% 3.1% 3.2% 4.7% 9.5% 2.4% 5.4%

Italy Bond JPMTIT index 6.1 2.6% 3.0% 3.3% 7.0% 13.8% 3.6% 6.7%

Spain Bond JPMTSP Index 6.6 2.8% 3.0% 3.2% 6.3% 12.6% 3.2% 5.8%

EMU Bond All Maturity JPMGEMUI Index 6.7 2.7% 2.9% 3.0% 4.8% 9.6% 2.7% 5.2%

Barclays Global Treasury BTSYTRUH Index 6.5 3.3% 3.3% 3.3% 3.7% 6.9% 3.2% 3.9%

Credit Investment Grade

Euro Corporate IG ER00 index 4.4 2.8% 3.2% 3.3% 4.6% 7.3% 2.8% 4.7%

US Corporate IG C0A0 index 6.5 5.0% 5.0% 5.1% 6.1% 11.2% 4.0% 6.6%

Barclays Euro Aggregate LBEATREU Index 6.2 2.7% 3.0% 3.1% 4.5% 8.5% 2.6% 4.6%

Barclays US Aggregate LBUSTRUU Index 6.0 4.8% 4.5% 4.6% 4.6% 9.5% 3.0% 4.5%

Barclays Global Aggregate LEGATRUH Index 6.3 3.9% 3.8% 3.8% 3.9% 7.4% 3.3% 3.8%

Credit High Yield

Euro Corporate HY HE00 index 2.7 3.1% 4.0% 4.6% 11.4% 19.6% 5.9% 12.7%

US Corporate HY H0A0 index 3.2 4.5% 5.3% 5.7% 10.3% 19.3% 6.3% 10.4%

Emerging Market Debt

EM Hard Currency Debt* JPEIDIVR Index 6.3 5.2% 5.9% 6.1% 8.4% 18.3% 5.4% 9.2%

EM-Global Diversified** JGENVUUG Index 5.2 6.6% 6.2% 6.8% 10.6% 22.1% 3.5% 11.6%

GBI-EM China LOC JGENCNTL Index 5.7 0.8% 1.7% 1.8% 3.9% 9.4% na na

GBI-EM India LOC JGENINTL index 6.8 7.1% 6.9% 7.1% 6.5% 10.5% na na

Convertible Bond

Europe Index (Eur Hedged) UCBIFX20 Index 4.6% 5.2% 5.8% 12.1% 24.6% 3.8% 10.1%

Equities

US Equity NDDLUS Index 6.8% 6.1% 7.3% 16.7% 42.0% 9.8% 16.1%

Europe Equity NDDLE15 index 7.6% 7.5% 8.7% 17.9% 39.7% 6.2% 15.0%

Euro zone Equity NDDLEMU Index 7.4% 7.3% 8.9% 19.8% 42.7% 5.7% 17.9%

UK Equity NDDLUK Index 7.8% 7.7% 8.5% 14.8% 34.7% 6.5% 13.4%

Japan Equity NDDLJN Index 7.8% 6.6% 8.3% 20.5% 43.7% 6.5% 19.6%

Pacific ex Japan Equity NDDLPXJ Index 8.3% 7.3% 8.2% 15.8% 35.5% 7.0% 15.1%

Emerging Markets Equity NDLEEGF index 10.2% 7.9% 9.2% 18.2% 40.0% 7.9% 16.7%

China Equity NDELCHF Index 9.1% 7.7% 10.8% 26.8% 50.5% 7.4% 25.5%

India Equity NDELSIA index 9.7% 8.2% 11.1% 26.0% 59.5% 13.8% 22.8%

EM ex China Equity*** M1CXBRV Index 9.9% 8.0% 9.1% 17.2% 42.3% 6.2% 21.0%

World Equity NDDLWI index 7.1% 6.4% 7.5% 16.5% 41.0% 8.4% 15.3%

AC World Equity NDLEACWF Index 7.4% 6.6% 7.7% 16.4% 40.5% 8.3% 15.1%

* Hard Currency USD, China Bond starting date is beginning of 2019. ** USD Unhedged, including the USD currency expectation towards EM currencies. *** LC
for expected returns and simulated volatility, USD unhedged for historical statistics. Amundi CASM Model. Data as of 31 December 2024. For further information
see the ‘Sources and Assumptions’ section. The forecast returns are not necessarily indicative of future performance, which could differ substantially.

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THE BIG TAKE

Strategic Asset Allocation:

Rising rewards from equities and real assets

KEY TAKEAWAYS ON STRATEGIC ASSET ALLOCATION

Over the next decade, a more supportive macroeconomic scenario translates into generally higher
expected returns across the universe of investable assets, improving the Strategic Asset Allocation (SAA)
expected risk-return profile across different investor types.

Efficient frontiers are 50-100 bps higher when alternative assets are considered. Compared to last year,
v

the optimal SAA shows a reduction in the global aggregate in favour of riskier assets, mainly for
moderate risk profiles. The risk budget is reallocated to equity in a liquid-only universe, and to private
assets and ‘opportunistic’ fixed income when considering real and alternative assets.

Within equity, this year’s preference is for Developed Markets, due to their improved risk-return profile
(thanks to lower transition costs and productivity gains from AI). For alternative and real assets, the
preference is for infrastructure and private debt for moderate risk profiles, and private equity for more
aggressive ones.

In this article, we present the annual update of the strategic asset allocation (SAA) exercise over a 10-year horizon.
The global investment universe is unchanged versus last year. It includes global fixed income, Developed and
Emerging Market equities, and real and alternative assets. We assess the SAA from the perspective of US dollar
(USD) and euro (EUR) based investors. For each base currency, we consider two risk profiles: moderate (with a
volatility target of around 6%) and dynamic (volatility target of around 12%).
We also consider an illiquidity tolerance, which penalises real and alternative assets relative to public ones, in
accordance with investor preference. SAA, based on our capital market assumptions, helps guide investors on how
to efficiently diversify assets to target a specific level of risk. In addition to traditional forward-looking statistics, we
report the probability of the optimised portfolio being below simulated inflation, therefore taking into account the
distribution around the average scenarios. The SAA is based on simulated scenarios that consider a distribution of
economic outcomes. Thus, the derived SAA is more robust than scenarios that deviate from the central scenario.

Efficient frontiers for EUR and USD investors including alternative assets

8.0%
10-year expected geometric returns

Source: Amundi Quant Solutions

7.0% based on CASM model
simulations and POwR optimiser.
Data as of 30 January 2025.
6.0% Efficient frontiers are obtained
by minimising portfolio
Conditional Value at Risk (CVAR),
5.0% while respecting diversification
constraints and the investor’s
liquidity preference. Frontiers
4.0% may exhibit irregular patterns
when plotted in the mean-
volatility space. Forecast returns
are not necessarily indicative of
3.0%
future performance, which could
4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% differ substantially.
Expected Volatility
USD - 2025 USD - 2024 EUR - 2025 EUR - 2024

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Strategic asset allocation for a moderate risk investor

Euro based investors with a moderate risk exposure can expect 4.4% annual Our global SAAs are
returns over the next decade, rising to 4.9% when including real and positioned to benefit
alternative assets. A US investor with the same profile can expect annual
returns of 5.6-6%. These figures are respectively 30 to 70 basis points (bps) from the rise in risky
higher than last year, primarily due to the higher expected returns for risky asset expectations
assets.
while showing
Although global aggregate remains the SAA’s main pillar, representing 47-
improvements in risk-
51% of the euro investor’s allocation and 50-54% for the USD based one, its
weight is lower compared to last year, given that there is more risk- adjusted returns.
adjuster reward coming from risky assets. Yet, this exposure remains key
for investors with a mild risk appetite to effectively exploit the downside
diversification versus risky assets. NICOLA ZANETTI
Quantitative Analyst,
Similar to last year, the allocation to ‘opportunistic fixed income’ (i.e., global Multi Asset Solutions,
high yield and the Emerging Market Bond Index) is around 20-25% of the Amundi
optimised portfolio for both investor types.
The overall equity allocation has risen compared to last year, reaching
25% for the EUR portfolio. This allocation is particularly tilted towards
Developed Markets, while it is marginally lower compared to last year for
emerging ones. This reflects our view that the EM aggregate, in spite of
higher return expectations, could face some instability due to transition risks
and US policies.
The equity allocation drops to 21% when looking at the USD portfolio,
due to the inherent advantage in hedging foreign fixed income (i.e., positive SCAN OR
carry and somewhat lower volatility). Another advantage for US investors is CLICK TO
VIEW
the higher probability of outperforming inflation, supported by higher DIGITAL
average expectations for the greenback compared to the euro, despite VERSION
similar inflation forecasts.

Euro & US dollar 10-year optimised portfolios for moderate and dynamic risk profiles
Investor Currency Euro US Dollar
Risk Appetite Moderate Dynamic Moderate Dynamic
Asset Universe No Alts With Alts No Alts With Alts No Alts With Alts No Alts With Alts
Portfolio Statistics
Geometric Exp. Return 4.4% 4.9% 5.6% 6.2% 5.6% 6.0% 6.8% 7.3%
Exp. Volatility 6.0% 6.0% 12.0% 11.9% 6.0% 6.0% 11.9% 12.0%
Sharpe Ratio 0.39 0.47 0.30 0.34 0.40 0.46 0.30 0.34
CVaR 95% at 10-Year 8.7% 9.3% 19.2% 19.5% 7.4% 7.9% 17.6% 18.4%
P(Ret < 0) at 10-Year 0.2% 0.1% 5.1% 3.8% 0.0% 0.0% 1.8% 1.7%
P(Ret < CPI) at 10-Year 13.8% 9.4% 18.9% 15.6% 3.0% 1.8% 9.8% 8.5%
Portfolio Composition
Global Aggregate 51% 47% 12% 10% 54% 50% 18% 14%
EMBI & Global HY 25% 20% 25% 23% 25% 20% 25% 21%
DM Equity 20% 8% 52% 37% 16% 8% 44% 36%
EM Equity 4% 2% 10% 11% 5% 2% 13% 11%
Real and Alternative Assets 0% 23% 0% 20% 0% 20% 0% 18%
Real and Alternative Assets Breakdown
Global PE 8% 10% 6% 8%
Global Real Estate 2% 2% 2% 2%
Infrastructure Equity 6% 4% 4% 2%
Global Private Debt 5% 2% 5% 4%
Hedge Funds 2% 2% 2% 2%
Changes vs Last Year
Global Aggregate
EMBI & Global HY
DM Equity
EM Equity
Real and Alternative Assets
Source: Amundi Quant Solutions based on CASM model simulations and POwR optimiser. Data as of 30 January 2025. Efficient frontiers are obtained by
minimising portfolio CVAR, while respecting diversification constraints and the investor’s liquidity preference. Fixed income asset are hedged, equity and
real and alternatives are unhedged. Real and alternative assets include global private equity, global real estate, infrastructure equity, global private debt,
and hedge funds. Volatility and other risk metrics for alternative assets are simulated considering unsmoothed returns series, Hence those measures will
be different from the ones obtained from realised IRR. Forecast returns are not necessarily indicative of future performance, which could differ
substantially.

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The allocation to real and alternative assets is similar for both investor types Within the real and
with a mix of private debt, private equity and infrastructure. While exposure
to private equity enhances the return potential, allocating to income-like alternative space, we see
alternatives (private debt and infrastructure) helps optimise the overall risk- a larger allocation
return profile. Compared to last year’s SAA, our analysis suggests
towards private debt and
reducing the exposure to hedge funds, while adding to private debt and
equity where returns have improved most. private equity this year
Moving towards more dynamic risk profiles, the evolution of the efficient compared to last year,
frontier weights (see charts below) shows that the overall allocation to thanks to their improved
bonds has decreased in favour of risky assets, with DM equities the most
favoured, followed by EM equities and private equity. In the bond space, the risk-return payoff.
highest risk profiles see an allocation tilted towards EM bonds & HY.
Strategic asset allocation for a dynamic risk investor VIVIANA GISIMUNDO
Head of Quant Solutions,
Return expectations increase by more than 100bps for aggressive risk Multi Asset Solutions,
profiles compared to a moderate risk profile, ranging from 5.6% to 6.2% for Amundi
EUR based investors, and 6.8%-7.3% for USD ones. These represent a 50 to
90bps increment on last year, due to the greater equity exposure to capture
growth opportunities.
For a dynamic investor with a target volatility of around 12%, the overall
bond allocation remains approximately one-third of the total portfolio
(consistent with last year), with a greater preference for opportunistic fixed
income. Meanwhile, the allocation to the global aggregate decreased to
around 10-14%. For the dynamic investor profile, the inclusion of real and
alternative assets in the Strategic Asset Allocation optimisation is
funded by a reduction in the allocation to Developed Market equities.
The inclusion of real and alternative assets (private equity and debt
represent two-thirds of this bucket) helps to improve the portfolio’s
Sharpe Ratio while keeping the tail risk under control and reducing the
probability of underperforming inflation. Investors should bear in mind that
while exposure to alternatives offers risk-return diversification benefits, it
also comes with increased risks related to illiquidity and complexity that
require specific technical expertise.

Efficient frontier weights for EUR (left) and USD (right) investors with alternative assets
100% 100%
90% 90%
80% 80%
70% 70% Dynamic profile
Portfolio weight

Portfolio weight

Dynamic profile (12% volatility)

60% 60%
(12% volatility)
50% 50%
40% 40%
30% 30%
20% 20%
10% Moderate profile 10% Moderate profile
(6% volatility) (6% volatility)
0% 0%
5.4%
5.6%
5.7%
5.9%
6.1%
6.5%
7.0%
7.5%
8.0%
8.5%
9.1%
9.7%
10.3%
11.0%
11.7%
12.4%
13.2%
14.0%
5.4%
5.6%
5.8%
6.0%
6.1%
6.4%
6.7%
7.1%
7.6%
8.0%
8.5%
9.0%
9.6%
10.2%
10.8%
11.5%
12.2%
13.0%

Volatility Volatility

Source: Amundi Quant Solutions based on CASM model simulations and POwR optimiser. Data as of 30 January 2025. Efficient frontiers are obtained by
minimising portfolio CVAR, while respecting diversification constraints and the investor’s liquidity preference. Frontiers may exhibit irregular patterns
when plotted in the mean-volatility space. Forecast returns are not necessarily indicative of future performance, which could differ substantially.

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LONG-TERM
THEMES

Demographics will shape future growth 22

potential

The diverse economic impacts of artificial 24

intelligence

The direction of long-term rates in an era 25

of high debt

Empowering transformation in Europe 27

Equity sectors: a mix of Growth and Value to 29

navigate AI, climate change & geopolitics
and deregulation

India: a rising global tech innovation hub 31

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Demographic trends Amundi Investment Institute
INFOGRAPHIC

Demographics will shape future growth potential

Demographics represent one of the major underlying forces of our macro-financial projections, as labour is
one of the key inputs of production and economic growth. Three important trends will shape the macro-
financial landscape over the coming decades.

Shrinking populations in most DM and several EM…

In the absence of immigration, fertility rates are declining below the substitution threshold.
Many DM and China have already peaked, a large group of EM (e.g. India, LatAm) should peak in the
next decade, while Sub-Saharan Africa should stay above the threshold for the next 25-30 years.

Fertility rates by region

8

7 Wave 3
Sub-Saharan Africa set to remain
6 the area with most significant
Children per woman

population growth in the future

5
Wave 2
4 Most Asian and LatAm fertility rates are
currently falling below replacement level
3

1 Wave 1 - DM and China's fertility rates fell below

replacement level in the 1980s-90
0
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
North America European Average China
Latin America & Caribbeans Middle East & North Africa India & Indonesia
Sub-Saharan Africa Nigeria Substitution rate

Source: Amundi Investment Institute on Macrobond data as of 21 February 2025.

… leads to a lower workforce that will reduce potential

economic growth…

Projected change in working age population

Sub-Saharan Africa
Nigeria
World
North America
Indonesia
Based on current projections,
India
Western Europe many regions will face a
Europe significant decline in the
Eastern Europe working age population
Brazil even faster than population
Turkey ageing. This will increase
Southern Europe 2035 vs 2025
dependency ratios, albeit at
China different paces and points in
2050 vs 2025
South Korea
time, and lead to lower
-40% -20% 0% 20% 40% 60% 80% 100% potential economic growth.
Source: Amundi Investment Institute on Macrobond, based on the medium scenario projections
from United Nations World Population Prospects 2024.

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Demographic trends Amundi Investment Institute
INFOGRAPHIC

…however Sub-Saharan Africa, India and a few other EM

are still enjoying a positive demographic dividend.
Emerging Markets will continue to enjoy better demographic dynamics. However, they will face a challenge to
employ a younger population while artificial intelligence is transforming the labour market.
Overall, these demographic shifts will impact labour force availability, potential growth, consumption patterns,
savings and investment preferences.

Global population by region

10
Billions

9 16%

Share of global population in 2050

8
4%
4%
7 7%
8%
6
8%
5
13%
4

3 17%

1 23%

0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Sub-Saharan Africa India China
South Asia ex India Latin America & Caribbean Middle East & North Africa
European Union North America RoW

Source: Amundi Investment Institute on Macrobond data as of 21 February 2025. RoW = Rest of World.

Mitigating factors to offset negative impacts on potential growth.

These demographic dynamics will challenge the economic transition of the main DM and some EM countries and lead to
lower potential growth. Some mitigating factors may partially offset the decline in the labour component of GDP
growth driven by decreasing working age populations:

Shift towards a different

working population mix
via relocation of supply chains in areas Potential
with higher fertility rates, migration and
later retirement ages GDP Growth
Some mitigating
factors may partially
offset the decline in
the labour component
Enhanced productivity of GDP growth.
growth through
artificial intelligence

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Capital Market Assumptions Amundi Investment Institute

LONG-TERM THEMES

The diverse economic impacts of

artificial intelligence
Last year, we explored how artificial intelligence (AI) could impact the major Continued competition
production factors in the economy (labour, capital and productivity). Here,
we extend our analysis by focusing on differentiating macroeconomic and innovation are
productivity gains across countries. We use the IMF’s AI Preparedness likely to create winners
Index and its sub-components (digital infrastructure, innovation and
and losers, and help
economic integration, human capital and labour market policies, and
regulation and ethics) to differentiate the starting point and adoption of AI broaden the benefits
across economies. Productivity, capital investment and capital depreciation of the new technology
are then modelled to estimate the impact of productivity on potential GDP
growth. across the economy.
According to our simulations, AI adoption should progressively boost
productivity at the global level, reaching its peak in ten years' time, but ANNALISA USARDI, CFA
will not be sufficient to offset the long-term potential growth reduction Senior Economist, Head of
driven by demographics. Broader adoption of more commercial applications Advanced Economy Modelling,
Amundi Investment Institute
of AI should allow for similar patterns across regions, although for some
countries and regions, economy-wide benefits might appear sooner in light
of their preparedness, for which the DM vs. EM divide does not apply. If the
first years see some differentiation, a broadening of AI adoption will help the
‘laggards’ to catch up on productivity as we reach the middle of the next
decade.
Ongoing competition and innovation in the field of AI are key to broadening
the benefits of the new technology across the economy (by lowering barriers
to entry, accelerating adoption, and creating new opportunities) and making
the benefits spread from the microeconomic level (firm, industry, sector) to
the macroeconomic one. Breakthroughs in efficiency gains that make a
technology more affordable will be pivotal as they make AI investments and
benefits affordable to many small companies, previously cut out. Lower SCAN OR
costs for AI models could lead to faster adoption by both corporates CLICK TO
and households, higher spending, and aggregate investment for AI, READ FULL
PAPER
boosting aggregate productivity.

Contribution to GDP growth from the AI boost to productivity

0.40

0.35

0.30

0.25
pp

0.20

0.15

0.10

0.05

0.00
2025-34 2035-45 2045-55
Latam North America DM Europe EM Europe Asia

Source: Amundi Investment Institute, S&P Global. Data is as of 4 February 2025.

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Capital Market Assumptions Amundi Investment Institute

LONG-TERM THEMES

The direction of long-term

rates in an era of high debt

Real interest rates have been on a secular decline since the mid-1980s but
have corrected sharply higher since the Covid pandemic, higher inflation
and the end of central banks’ Quantitative Easing (QE). Now, public debt is
much higher and there are new demands for funding (e.g., for defence
and net zero ambitions), which should argue for structurally higher long-
term interest rates. Yet numerous empirical studies find that the secular
decline in real rates is due to adverse demographics and declining
productivity (at least in the advanced economies), which are expected to
continue.
Abstracting from the current bout of sharply rising yields triggered by the
sea change in Germany’s fiscal policy, what would constitute a prudent
capital market assumption over the long term for asset allocation and the High, and possibly
expected returns of the main asset classes?
rising, public debt
The structural determinants of the equilibrium for real interest rates (R* in
the jargon) provide a good starting point. Ageing populations imply lower will keep real rates
growth, which in turn requires less investment, hence a lower demand for high and delay the
funds. Similarly, declining productivity reduces incentives to invest.
return to estimates
Economists, in general, expect R* to come back to lower levels in the long
term, primarily because demographic trends (which only change over very of equilibrium for
long periods) are expected to remain adverse. While there is some optimism real interest rates.
that artificial intelligence (AI) could increase productivity, it would only
stem the secular decline that has been underway over the last few
decades. This would suggest a real rate back at around 1% in the US (from MAHMOOD PRADHAN
the current level of around 1.5%), with current R* estimates moved slightly Head of Global
upwards. Other advanced countries should also see a similar return to their Macroeconomics, Amundi
longer-term norms. Investment Institute

Global debt increased by nearly USD 7 trillion in 2024

340 360
USD trillion

Weighted avg. % of GDP

320
350
300

340
280

260
330

240
320
220

200 310
2016 2017 2018 2019 2020 2021 2022 2023 2024

Global debt % of GDP (rhs)

Source: Amundi Investment Institute on Institute of International Finance data as of 1 December 2024.

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Capital Market Assumptions Amundi Investment Institute

But investors will rightly question such a sanguine view, not least on the grounds that, given the current
environment, how can economists be confident about getting to this long-run level? For one, there is little
evidence that governments are attempting to reduce public debt – for most advanced economies, it will
likely rise for a while. The recent rise in German Bund yields, which has a large real component, is a good
example of more debt increasing real rates. Moreover, over the last two years, real interest rates have
been rising despite well-anchored, longer-term inflation expectations. And even more importantly, we
now have ample evidence that longer-end yields are strongly correlated across advanced economies, which
implies that countries may suffer higher real rates through global contagion.
High, and possibly rising, public debt will keep real rates high and delay the return to estimates of R*.
But for some countries, it will raise debt sustainability concerns, including the US if fiscal policy remains on its
current path. And for most countries, the market will implicitly enforce fiscal trade-offs. This, in turn, implies
lower medium-term growth and that will be one way real interest rates decline. However, it is also possible
that high public debt will weigh on inflation, which will result in higher central bank policy (neutral) rates. We
also expect higher interest rate volatility due to more volatile inflation through our cascade model structure.
As central banks have maintained a restrictive policy stance over the last three years, much of the rise in long
bond yields has been due to an increase in real yields – inflation has come down gradually, but market
expectations of inflation have remained stable. This fuels doubt among investors whether real rates will
return to pre-GFC levels (of around 1%). But this also begs the question of what has fundamentally changed
such that the US, for example, can be resilient to and sustain real rates moving higher than 1.5% towards
potential GDP. Estimates of potential output have not budged much. Consensus estimates, similar to official
estimates, point to 1.8-2% as the long-run potential. Elsewhere – in Europe and the UK, for example –
potential growth is arguably slightly lower than before. This is the fundamental reason why we believe
real rates will eventually revert to their long-run equilibrium.
A more worrying issue is the correlation between long bond yields across Developed Markets, with two
very strong recent illustrations. First, the rise in US bond yields following Trump’s election, when markets
revised up US inflation and growth expectations. This had a very immediate impact on German and UK bond
yields, despite no change in any underlying fundamentals in Europe. A second, more recent episode is
Germany’s policy announcement to increase defence and infrastructure spending. The impact on global bond
yields was immediate, including contagion to the US.
Contagion implies that some risks, prime among these would be the secular rise in US public debt, are
global risks. An increase in the US term premium would be transmitted across borders. And this could keep
real interest rates high and volatile beyond what is warranted by domestic factors. This would amplify
headwinds to growth and financing conditions.
In short, a return to equilibrium R* could take time, until public debt is on a stronger footing. Hence, the
medium to long-term horizon could be characterised by higher interest rate volatility and some contagion
risk.

One-year correlations of long-end yields to the US

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
2002 2005 2008 2011 2014 2017 2020 2023

10Y EUR with 10Y US 10Y UK with 10Y US 10Y Avg with 10Y US

Source: Amundi Investment Institute on Bloomberg data as of 31 January 2025. One year correlations computed on daily observations. The 10 year
average correlation line is computed as the average of the EUR and UK yields.

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 Capital Market Assumptions Amundi Investment Institute

LONG-TERM THEMES

Empowering transformation in Europe

Europe is facing major economic and security challenges. The European By targeting actions to
Commission (EC) has started translating the Draghi report’s
recommendations into effective proposals. address the
On the economic front, insufficient investment and weakening productivity, underlying issues of
coupled with an ageing population, are weighing on potential growth in low productivity,
Europe in general and in the Eurozone in particular. On the security front,
the White House's announcement that the US will abandon its military Europe could achieve
umbrella over Europe will force EU Member States to step up their defence productivity gains
efforts significantly. The decision recently ratified by the German parliament
over the next decade.
to massively increase infrastructure and defence spending represents a
historic shift that will revive German growth, which Europe should benefit
from in the coming decade. DIDIER BOROWSKI
EU leaders are preparing to take significant measures on both fronts. The EC Head of Macro Policy Research,
is in the process of translating some of the Draghi report’s Amundi Investment Institute
recommendations – published in 2024 – into action. Its proposals will be .
examined by the European Parliament this year, starting on 1 April with the
vote on the ‘stop the clock’ proposal (postponing the implementation of key
EU sustainable development legislation until 2027-28) of the "Omnibus
Package“1. 1Apackage that aims to simplify
and streamline EU sustainability
In the medium term, our scenario for Europe assumes that the EU will regulations, in order to reduce
gradually catch up in terms of investment, innovation and administrative burdens,
competitiveness. particularly for SMEs.

Incorporating the EU Commission’s Competitiveness Compass into our macro assumptions

For the Eurozone, we are incorporating part of the EU Commission’s Competitiveness Compass and its
implications on growth by assuming a boost to productivity in two ways:

The boost from artificial intelligence (AI), which has a major impact on labour
productivity (see the article on AI, on page 24)

The boost from reforms improving competitiveness (i.e., governance, public

procurement, ease of doing business) is conservatively estimated to contribute about 1%
to trend growth over 10 years, in line with research on the impact of structural reforms.

Euro area productivity historical trends

4%
3%
2%
1%
0%
-1%
-2%
-3%
1997 2000 2003 2006 2009 2012 2015 2018 2021 2024
Source: Amundi Investment Institute on Macrobond data. Data as of end of Q3 2024.

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In a nutshell, the broad guidelines for action are:

 Reducing regulation and administrative burdens to encourage innovation and improve productivity;
 Relaxing regulations on sustainable finance to support Small and Medium-sized Enterprises (SMEs);
 Reducing external energy dependency and developing renewable energies to enhance competitiveness,
particularly for countries with a strong industrial base;
 Closer integration of capital markets to effectively channel Europe's abundant savings;
 Broadening and strengthening existing commercial partnerships to reduce dependency of supply chains.
2025 is a pivotal year as the EC unveils concrete action plans:
The Competitiveness Compass (presented on 29 January 2025) outlined flagship measures aimed to
1 reverse industrial decline and step up efforts to compete with the US and China in areas like AI,
while reducing energy costs and cutting red tape. Its three main pillars are innovation (promoting AI and
robotics), decarbonisation (facilitating affordable energy access and reducing CO2 emissions), and
security and defence (increasing resilience).

2
The Clean Industrial Deal (CID, presented on 26 February 2025) details actions to help energy-intensive
industries decarbonise and stimulate clean technology production, aiming to lower energy bills. The goal
is to stimulate investment by fostering innovation and competitiveness, making decarbonisation a
growth driver for industry. The EU must accelerate clean energy deployment by speeding up
electrification, creating an internal energy market, and reducing the share of imported fossil fuels in the
energy mix. To finance this transition, the CID will mobilise more than EUR 100 bn and is proposing to
adopt a new framework for state aid aimed at deploying renewable energies (in order to speed up their
approval). The CID is also proposing to increase the amount of financial guarantees to support
investments which, according to the EC, should make it possible to mobilise up to EUR 50 bn.

Finally, the EC’s White Paper on Defence, along with the “ReArm Europe/Readiness 2030 plan (both
3 presented on 19 March) proposes measures to strengthen the defence sector. The recommended strategy
is the most important undertaking since the Cold War. Among the conditions for achieving this are the
establishment of pan-European supply chains and the promotion of innovative Research & Development,
in order to increase the economic impact of defence spending over time. To this end, the strategy will
offer member states financial levers to stimulate investment, with the potential mobilisation of nearly EUR
800 bn over the next four years. The flagship measures are centred on three main axes: first, enabling
member states to increase their defence spending without triggering an excessive deficit procedure,
allowing each member state to mobilise up to 1.5% of GDP per year in additional defence spending.
Second, granting up to EUR 150 bn in loans to member states for defence-related investments via a new
instrument called 'SAFE.' Lastly, accelerating the establishment of the ‘Investment and Savings Union’ (the
new name for the Capital Markets Union).

Are European equities becoming structurally more appealing?

After a prolonged period of underperformance, European equities have started to reverse this trend.
Historically, European equities outperformed in the 90s due to strong economic growth from market
integration, technological advancements and regulatory changes, but they have lagged over the past decade.
With more attractive valuations (although to a lesser extent after the recent rally), and anticipated gains from
industrial policies and higher productivity that could trigger relevant changes at sector/ country levels, we
project European equities will outperform the world index over the next decade. Despite the recent
outperformance, we believe that the structurally improved appeal for Europe should continue, supported by
the recently approved extraordinary fiscal push in Germany and a potential ceasefire and reconstruction in
Ukraine.

Our CMA sees Europe outperforming other Developed Markets over the next decade.
While this trend has started to materialise during the first quarter of 2025, we
believe that Europe has the potential to become structurally more appealing, as its
new industrial policy will trigger relevant opportunities at sector/country levels.

GUY STEAR, Head of Developed Markets Strategy, Amundi Investment Institute

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LONG-TERM THEMES

Equity sectors: a mix of Growth and Value to navigate

AI, climate change & geopolitics and deregulation

We see three themes shaping sector returns in the coming decade. Artificial
intelligence (AI) will support the Information Technology (IT) sector followed
by Healthcare, but it is due to extend to others as well. Regarding climate
change and geopolitical dynamics, capital expenditure (Capex) will play a
more important role than consumption, benefitting Industrials more than
the Consumer Staples and Discretionary sectors. Finally, policies supporting
deregulation should improve capital efficiency and shareholder returns, to
the benefit of Financials. Sector assessment is also important in assessing
regional opportunities, as the sector composition of equity markets differs
from the sector composition of the economy.
Painting a broad picture of expected returns by sectors
Looking at the top sectors in our ranking of the MSCI All Countries
World Index (ACWI), there is a mixture of Value and Growth. Whereas
Financials sit in the Value camp, IT is on the Growth side. Industrials and Across regions, the
Healthcare vary across regions: they are considered Value in the US and most highly ranked
Growth in Europe, for example, according to MSCI. Both the Consumer
sectors (Staples and Discretionary) sit at the bottom of the ranking.
sectors are a mixture
of Value and Growth,
Across regions, Financials, Healthcare and Industrials consistently top
the rankings. Financials, in particular, are consistently above the market particularly Financials,
average, except in Pacific ex-Japan, and have some of the highest expected Healthcare, and
returns in Europe and Japan. Industrials are also well favoured across
regions with the exception of Emerging Markets, whereas IT is only above Industrials.
the market average in the US and EM.
At the bottom of the list, Staples and Utilities are consistently below ERIC MIJOT
average everywhere. Consumer Discretionary is only above average in Head of Global Equity Strategy,
Japan and Communication Services in the Pacific. Amundi Investment Institute

Physical risk: the next research frontier to

assess companies’ and sectors’ expected returns
At the Amundi Investment Institute, we are working on new research to
assess the bottom-up impacts of physical risks stemming from climate
change considerations. Our recent working paper, titled Investor Concerns
and the Pricing of Physical Risks, examines companies’ exposures to
tropical cyclone risks. In particular, we find that a significant number of
companies – up to 75% of our sample – are exposed to this risk, with
East and Southeast Asia, the US and Central America being the most
affected. Our analysis shows that stock performance is influenced not only
by the anticipated damage from tropical cyclones but also by investor
attention during periods of high cyclone activity. While highly exposed
stocks exhibit a premium during periods of low cyclone activity, this
premium is offset by investor concerns during active periods,
resulting in an insignificant long-term impact on equity performance.

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Sector implications of key themes

Artificial Climate change and Deregulation and

Intelligence geopolitics policy support
The democratisation of AI and the Energy, Materials and Staples are Policy changes should mostly
rotation from ‘hyperscalers’ to the most negatively impacted by support global Financial sectors,
‘enablers’, particularly in the climate change and ESG but in different ways across
Software sector, is expected to considerations. Utilities fare regions. Deregulation will play a
boost global productivity and slightly better in this regard, but key role in the US, while capital
equity in the long run. Not all their overall expectations remain efficiency and the unbundling of
'Magnificent 7’ sectors are at the below regional market averages. cross-shareholding will be the
top of our rankings. While IT Industrials are a broad group that main driver in Japan. By contrast,
remains a strong candidate, it is includes the Aerospace and high shareholder returns should
expensive in the US but Defence sectors benefitting from benefit Financials in the Eurozone.
supported by climate change ongoing geopolitical dynamics. Notably, this sector represents
initiatives and ESG scores, and is While industrial emissions are another way to play the Capex
more affordable in EM. It should high, they can also be part of the theme, as these investments will
also deliver better returns than solution. Moreover, they should need to be financed. Additionally,
Communication Services and fare better than the Consumer the sector should eventually enjoy
Consumer Discretionary. As AI’s Discretionary, which is also higher efficiency with the
benefits expand, other sectors broadly neutral on climate adoption of AI.
like Healthcare are poised to change. Capex will be a stronger
benefit. theme than consumption.

We assess sectors’ expected returns on the basis of earnings growth, valuation and dividend yield
dynamics, also considering a risk premium linked to climate change, ESG and Net Zero considerations.
Across regions, the most highly ranked sectors in our analysis are a mixture of Value and Growth,
particularly Financials, Healthcare and Industrials.

Long-term expected returns adjusted by flows

Pacific
31 - DEC 2024 USA Europe Japan Emerging World AC
ex Japan

Consumer Discretionary 5.0% 7.4% 7.2% 5.7% 5.9% 5.6%

Consumer Staples 4.0% 4.0% 4.4% 6.6% 3.2% 4.0%

Energy 6.2% 6.9% 9.0% 5.8% 8.1% 6.5%

Financials 6.7% 9.0% 9.3% 5.9% 8.2% 7.4%

Real Estate 6.0% 4.4% 6.9% 9.1% 7.9% 6.4%

Health Care 7.4% 8.3% 7.1% 5.0% 5.0% 7.5%

Industrials 6.7% 7.6% 6.5% 9.2% 5.7% 6.9%

Information Technology 6.9% 6.0% 5.9% 5.4% 8.5% 7.0%

Materials 6.3% 4.9% 6.9% 7.4% 8.6% 6.5%

Communication Services 5.6% 7.3% 7.2% 9.7% 4.9% 5.8%

Utilities 5.8% 6.6% 6.3% 5.9% 6.6% 6.1%

Total 6.1% 7.5% 6.6% 7.3% 7.9% 6.6%

Source: Amundi Investment Institute on MSCI, Factset data as of 31 December 2024. Highlighted cells indicate above average expected returns by region.
The forecast returns are not necessarily indicative of future performance, which could differ substantially.

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LONG-TERM THEMES

India’s ambitions to India: a rising global tech

become a global
innovation hub should
innovation hub
benefit from the tech India's economic performance in the coming decades will be shaped by key
rivalry between China factors such as demographics, urbanisation and the continuation of growth-
enhancing investment strategies. A pivotal initiative in this regard is the
and the US Production Linked Incentive (PLI) scheme, launched by the Indian
government to strengthen the country's performance in strategic sectors,
reduce import dependency and enhance export capabilities.
ALESSIA BERARDI
Head of Emerging Macro To sustain growth, India must strike a balance between its robust Services
Strategy, sector, which boasts numerous excellent companies, and its Manufacturing
Amundi Investment Institute sector, which provides a significantly higher share of labour force benefits.
By incentivising domestic production, the PLI scheme aims to empower
Indian businesses to compete effectively in global markets, fostering
technological innovation and improving overall competitiveness. This
approach positions India to capitalise on the ‘China +1’ strategy.1
1 Theterm ascribed to supply The combination of targeted investment strategies and the country's
chain diversification, adding
alternatives to China.
advanced state of digitalisation is driving the development of artificial
intelligence (AI) in specific sectors. In a vast nation with a substantial rural
population and a significant number of small businesses, AI is proving to be
transformative.
Digital platforms are enabling more precise farming practices, optimising
the use of resources, reducing waste and improving crop yields. Additionally,
new platforms are connecting farmers with markets, enhancing market
access and facilitating price formation, particularly as the food segment is
crucial to India's inflation basket.
From a broader geopolitical perspective, the tech rivalry between China and
the US is benefiting countries like India, which aspire to become innovation
hubs for companies seeking to mitigate supply chain risks. In this context,
India offers the advantage of a rapidly growing start-up ecosystem.

India leads the way in Asia’s share of global IT services exports, 2023

12.0%
10.8%

10.0%
8.8%

8.0%

6.0%

4.0%
2.4%
2.0%
1.0% 0.9% 0.7%
0.4% 0.3% 0.2% 0.0%
0.0%
India China Singapore Japan Republic of Philippines Malaysia Indonesia Vietnam Thailand
Korea
Source: Amundi Investment Institute on UN Trade and Development (UNCTAD) data for 2023.

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ASSET CLASS VIEWS

DEC 2024-DEC 2034

Deep dive into assumptions on liquid 33

assets

Real and Alternative Assets in Focus 40

Sources and assumptions 43

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ASSET CLASS VIEWS

Deep dive into assumptions on liquid assets

Navigating equities: strong EPS growth vs. US valuation challenges
Over the next decade, we anticipate a macroeconomic environment characterised by inflation rates consistent
with last year's projections, coupled with improved economic growth across both Developed and Emerging
Markets. This outlook suggests an improvement in earnings per share (EPS) growth estimates of
approximately 1% for Developed Markets (DM) on an annualised basis. While EPS growth prospects in
Emerging Markets (EM) remain largely in line with our previous estimates, as the effects of commodity prices
are more complex and AI-driven productivity gains are less pronounced. In a changing trade environment,
our EPS estimates now also take into account the countries where companies generate their revenues,
allowing us to incorporate cross-country interconnections and highlight the potential impacts related to
tariffs.
Regarding market assessment, the most notable changes are in China and as consequence in EM. There is
now greater clarity regarding policy support from Beijing, which is expected to foster increased market
confidence and stability. However, Chinese equity performance will depend heavily on US containment
policies and continued domestic measures. Our central scenario assumes fiscal support will offset the
economic impact of 40% tariffs on US imports from China. Meanwhile, Indian equities should continue to
shine thanks to good earnings growth prospects and are only partially offset by somewhat stretched
valuations, while remaining insulated from tariffs.
At December 2024 the US market remained overvalued, with a larger valuation gap with respect to last
year due to the 2024 market rally (see page 38 for an in-depth analysis), which enters into our long-term
calculations. In Q1 2024, the delta valuation has been reduced faster than expected, which translates into
around a 30% improvement in the valuation component compared to the one assessed at the end of 2024.
Even with this improvement, the valuations’ contribution to US equity expected returns remains negative. The
outlook for European equities is promising, driven by improving earnings growth, increased productivity
(pushed by AI and reforms), and anticipated structural reforms in the Eurozone, all supported by relatively
favourable valuations. A similar positive outlook applies to the Pacific region excluding Japan, bolstered by
significant dividend yields.

10-year expected returns decomposition for equity

10-year ER contribution Differences vs 2024

10% 8.2% 1.5%
7.9% 7.7% 7.5% 6.1%
7.3%
8% 6.6%
1.0%
6%

0.5%
4%

2%
0.0%

0%
-0.5%
-2%

-4% -1.0%
India EM China Europe Pac. Ex Japan US
Jp
Dividend Yield EPS Growth Valuation ER 2024 Q4

Source: Amundi CASM Model. Data as of 31 December 2024. For additional information see ‘Sources and Assumptions’ at the end of this document.
Buybacks yield (if significant) is included in the EPS Growth component. The forecast returns are not necessarily indicative of future performance,
which could differ substantially.

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Improved corporate governance is driving higher shareholder returns, positively impacting market
sentiment for Japan’s equities. Moreover, the end of deflation should support a further rerating of the
equity market.
Overall, total expectations are rising across global equity markets, benefiting initially from enhanced
valuations and a stable or positive EPS outlook. The ranking of asset classes remains consistent with last
year’s expectations, with EM equities outperforming Developed Markets. There is a preference for EM
excluding China, while valuation pressures continue to weigh on US equities, counteracting some of the
positive gains from solid earnings growth. Within Developed Markets, we maintain a preference for
European and Pacific ex-Japan equities, as both are characterised by recovering fundamentals and
attractive valuations.
At the same time, the currently eventful political phase will play a role in shaping future market
performance and may affect the relative regional preferences assessed at the beginning of 2025. The
ongoing policy shift aimed at increasing Europe’s fiscal capacity may support higher growth potential in
future, further emphasising our more optimistic expectations for European equity markets in spite of
their strong performance so far this year. Similarly, the unfolding technological transformation and its
associated benefits have recently boosted Chinese equity markets, partially narrowing the previously
more attractive valuation gap. But a renewed and reinforced policy commitment to support the economy
should be reflected in higher earnings growth expectations. These factors reinforce our positive outlook
for China, while maintaining our preference for Emerging Markets outside of China moving forward.

Expected equity returns on a 10-year horizon by currency

USD EUR GBP JPY
Cash Return 3.3% 2.1% 3.1% 1.2%
10-year Expected Returns
Local Government 4.2% 2.9% 4.7% 1.6%
US Equity 6.1% 4.7% 4.7% 2.1%
Europe Equity 9.0% 7.5% 7.5% 4.8%
Japan Equity 10.8% 9.3% 9.3% 6.6%
Emerging Markets Equity 9.1% 7.6% 7.6% 4.9%
China Equity 7.7% 6.2% 6.2% 3.6%
India Equity 9.6% 4.7% 2.1% 6.1%
EM ex China Equity 9.1% 7.7% 7.7% 5.0%
Global Equity 6.9% 5.7% 5.6% 3.1%
AC Global Equity 7.2% 5.9% 5.9% 3.4%

Source: Amundi CASM Model. Data as of 31 December 2024. For additional information see ‘Sources and Assumptions’ at the end of this document. The
forecast returns are not necessarily indicative of future performance, which could differ substantially.

Considering the The equity assessment discussed thus far focuses exclusively on asset class
expected move in the expectations expressed in local currencies, without taking foreign exchange
(FX) into account. Investors must consider FX changes as these can
currency, unhedged significantly alter relative preferences for assets, as illustrated in the table
exposure to Japanese above displaying the unhedged expected returns for local government
bonds and equity indices expressed in G4 currencies.
equities emerges as
Japanese equity consistently emerges as the most attractive asset class
the most attractive across all currencies, benefiting from its exposure to the JPY. This has not
exposure for the long changed versus last year, as the JPY is even cheaper today. Conversely, US
term. equity appears less favourable, as the strong USD contribution is added to
the original expectations in local currencies. EM and EM excluding Chinese
equity exhibit promising return premiums in all currencies except for JPY.
NICOLA ZANETTI China and India equity expectations are appealing for USD and EUR based
Quantitative Analyst, investors.
Multi Asset Solutions, Amundi

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A careful and balanced approach to US stock market valuations

A key topic of concern in the current economic landscape is the possibility of
a bubble in US stock markets, which are undeniably high quality, but still
appear overvalued at the time of writing. The market has experienced one
of its most robust growth periods since 1928, fuelled by optimism
surrounding the macroeconomic outlook, strong corporate earnings and,
lately, artificial intelligence developments. These high valuations are
primarily driven by a small group of companies: in fact, 34% of market
capitalisation is concentrated in just the seven largest companies. Excluding
big tech, valuations are closer to their historical average, even if they remain
overvalued.
These elevated valuations, however, are not unjustified. Earnings growth
and technological innovation have played a significant role in driving Investors should be
up prices. Moreover, there are no clear signs of speculative excess cautious not to be
comparable to what was seen during the dot-com bubble of 2000 or the
financial crisis of 2008. Another point to consider is the US equity risk overly exposed to
premium*, which is at its lowest level since the dot-com bubble era, the US market and
explaining why many view US equity as being overvalued today.
its tech sector, and
Despite the apparent mismatch in US equity valuations, this may not diversify in less
necessarily indicate the presence of a bubble. Today’s economic context is
very different from that of the 1990s dot-com era. The US economy, along expensive markets
with its corporations, remains strong, and the ability to generate earnings is with solid
robust. Looking beyond the largest companies, valuations of broader
indices, like an equally-weighted index or the S&P 500 excluding the fundamentals.
Magnificent 7 are more in line with long-term averages.
However, the importance of valuation cannot be ignored on a shorter-term VIVIANA GISIMUNDO
horizon, especially since the market capitalisation-weighted index remains a Head of Quantitative
key reference for global investors. Furthermore, the risk of market Solutions, Multi Asset
concentration in the US, or a shift in investor sentiment, could amplify any Solutions, Amundi
negative effects and lead to financial instability and greater economic
vulnerability. In addition, geopolitical risks, including protectionist measures
1 Equity risk
coming from the US, could add further uncertainty to markets. Sectors that
pemium defined
are highly globalised could be particularly affected by these developments. as the differential
between the
Even if market valuations and last year’s investment flows reflect the positive S&P500 earnings
results achieved by US companies and the economy, investors are now yield and the 10-
turning more cautious, so as not to be overly exposed to the market and its year US treasury
yield.
tech sector, and are already diversifying in less expensive markets with solid
fundamentals.

S&P 500 10-year CAPE ratio

60

50

40

30

20

10

0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

Source: Finaeon, Global Financial Data, as of 31 January 2025. CAPE = Cyclically Adjusted Price Earnings.

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Revising cash rates and real neutral rates

Our central scenario, along with considerations regarding potential GDP growth and other factors (like
demographics) that will play a relevant role, has led to an upward revision of cash rates and real neutral
rates. Specifically, we observed a slight increase in rates for the US and Japan, consistent with recent
macroeconomic updates. The real neutral rate has eventually shifted into positive territory for Germany,
driven by higher labour productivity and a potentially more favourable economic growth outlook. We also
differentiated our neutral rate estimates across Eurozone countries due to idiosyncratic sovereign risk
assumptions and economic potential. India’s nominal cash rate target level is expected to rise primarily due
to the upward revision of inflation forecasts. As a result, we upgraded 10-year rates, albeit only slightly for
Germany, where we anchored the 10-year Bund at 3% given that, by lifting the cash rate, we expect a lower
term premium. Our assumptions regarding other term structures, such as those for China and the UK,
remain unchanged vs last year, as the bigger change that is regarding Chinese rates was already anticipated
last year and is now confirmed.

Government bond expectations surge: driven by carry and improved valuations

Expectations for government bonds have generally improved, supported by more favourable starting
yields reinforced by higher anticipated carry and more attractive future valuations. However, the impact of
revised yield assumptions is mixed, sometimes indicating higher carry and others diminishing the capital gain
component. Average 10-year cash returns have risen for the US, driven by the revised neutral rate, and for
Japan due to both the new neutral rate and updated monetary policy stance. By contrast, Eurozone cash
returns are slightly lower due to a faster monetary policy normalisation and in spite of a higher neutral rate.
The significant rise in expectations for UK and Japanese bonds is attributable to higher carry, further
enhanced by longer durations. Japanese yields are progressing towards higher and positive yields, consistent
with the pattern predicted last year. For US bonds, the increase driven by higher carry is mitigated by the
effect of higher long-term interest levels. This effect is similarly observed in France and, to a lesser extent, in
Germany. The slight reduction we anticipate for Italy and Spain is due to their targets being revised slightly
downward, incorporating a lower risk premium for the periphery, coupled with compressed sovereign
spreads at the outset, particularly for Italy. The downward revision for Chinese bond expected returns is
justified by the medium-term macroeconomic outlook, which reinforces the observation that the 10-year yield
has surprised to the downside. There are slight improvements in the Government Bond-Emerging Market
Index (GBI EM), linked to higher carry and positive support from foreign exchange exposure.
Recent market developments have seen some yield adjustment materialise that we forecasted. The most
relevant is the impact of the fiscal U-turn in Germany, which changes the landscape for European bonds,
prompting implied Euro yields to move closer to their long-term norm and they are now better positioned
from a return perspective.

10-year expected returns decomposition for government bonds

10-year ER contribution Differences vs 2024

8% 1.5%
7% 5.9%
1.0%
6%
4.7%
5% 4.2% 0.5%

4%
3.0%
0.0%
3%
2.3%
1.6% 1.7%
2% -0.5%

1% -1.0%
0%
-1.5%
-1%
-2% -2.0%
US Japanese UK Gilt German Italian BTP Chinese GBI EM LC
Treasury Bond Bund Bond

Carry Valuation Rolldown FX Sovereign/Currency Risk ER 2024-Q4

Source: Amundi CASM Model. Simulation starting date is 31 December 2024. For additional information see ‘Sources and Assumptions’ at the end of this
document. The forecast returns are not necessarily indicative of future performance, which could differ substantially. Fixed income assets’ expected returns
are broken down into: Carry, proxied by the par government or credit yield; Rolldown, the effect on bond prices generated by the passing of time;
Valuation, the effect on bond prices generated by the movement of government yields and spreads; Sovereign/ Currency Risk, the impact from being
exposed to sovereign and currency risks; FX, the performance associated with the FX exposure vs the USD.

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Capital Market Assumptions Amundi Investment Institute

Moving forward, we confirm that interest rate volatility will remain sustained, as increasingly observed in
recent times, in an environment where inflation could stay persistently above central bank targets and show
significant fluctuations and uncertainty. This is incorporated in our modelling of interest rates.
Credit expectations are rising as well, but less than for govies
Long-term levels of credit spreads are consistent with our previous update. We expect the dynamic
toward these targets to accelerate, and anticipate a risk of overshooting them in the medium term (i.e., within
five years).
Our default and recovery assumptions are generally supportive, as we anticipate some minor
improvements: we see a reduction in short-term default risk for lower-quality bonds and an increase in
recovery rates for higher-quality ones. Currently, credit spreads are significantly narrower than their long-
term levels across various regions and quality tiers, as a result of the compression experienced throughout
2024. We expect spreads to widen in the medium to long term, in line with a normalisation of risks
priced into the credit market.
The negative impact from the upward adjustment of spreads is offset by the support provided by government
yields, resulting in positive albeit modest improvements in credit expected returns. Overall, the outlook
for credit fixed-income assets remains positive, especially when compared to other asset classes, and
particularly for the investment grade (IG) segment and EM bonds.
Across regions, high-quality assets are likely to offer a reasonable premium over their respective government
bonds. The relatively higher return expectations for high-yield (HY) bonds over investment-grade ones don’t
fully compensate for the increased intrinsic risks, particularly in the US.
Spreads in the EU HY bond market are significantly below their long-term levels and considerably
lower than at the beginning of last year. Future returns may be penalised by a normalisation towards
higher levels. By contrast, the mismatch with long-term levels in the US is less pronounced, but we remain
cautious due to the extent of credit losses.
We expect the Emerging Market Bond Index (EMBI) spread to widen in line with other credit assets,
given that the starting level is significantly below its long-term average. The negative impact is only partially
mitigated by the decrease in US Treasury yields and a more stable carry moving forward, which supports our
overall expectations for EMBI.

10-year expected returns decomposition for credit bonds

10-year ER contribution Differences vs 2024

5.9%
8% 5.3% 1.0%

4.0% 0.8%
6% 5.0%
0.6%
4%
3.2%
0.4%
2% 0.2%

0% 0.0%

-0.2%
-2%
-0.4%
-4%
Euro US Corporate Euro US Corporate EM Hard -0.6%
Corporate IG IG Corporate HY HY Currency Debt
-0.8%
Euro IG US IG Euro HY US HY EM HC
Carry Rolldown Govt. Yield Valuation
Spread Valuation Default ER 2024-Q4
Source: Amundi CASM Model. Starting date is 31 December 2024. For additional information see ‘Sources and Assumptions’ at the end of this document. The
forecast returns are not necessarily indicative of future performance, which could differ substantially. Fixed income assets’ expected returns are broken
down into: Carry, proxied by the par government or credit yield; Rolldown, the effect on bond prices generated by the passing of time; Valuation, the effect
on bond prices generated by the movement of government yields and spreads; Default, assumption on the loss from the default.

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Capital Market Assumptions Amundi Investment Institute

FX: towards a long-term mean-reversion of US dollar strength

President Trump’s administration is seeking to rebalance aggregate demand The USD is likely to
towards the US to reinforce domestic manufacturing and industries and raise
revenues from exporters. While higher tariffs on imports into the US undoubtedly remain dominant in
make foreign products more expensive than domestic ones over time, the impact international
on the currency market is all but trivial, as the recent USD price action suggests. On
the one hand, a high degree of protectionism is a headwind for global trade,
funding, but
capping the upside for the currencies of more open economies. On the other hand, redirecting trade
high uncertainty and an unfriendly attitude towards trading partners may gradually flows will be difficult
reduce the pace of capital inflows into the US, which would be significant for the
country’s future funding needs considering the amount of money international with the greenback
investors have parked in US assets since the financial crisis. While we believe it will running so richly.
be strategically important for the US to defend its currency’s role in international
trade and funding, we also see reasons why a too strong USD is inconsistent with
the administration’s priorities, as structurally redirecting trade flows towards the US FEDERICO CESARINI
will prove a difficult task with the greenback running so richly. Head of DM FX,
Cross Asset Strategist,
Our framework – which looks at three variations of Purchasing Power Parity (PPP) Amundi Investment Institute
and Behavioural Effective Exchange Rate (BEER) models – suggests the USD is the
second most overvalued currency in G10 today, after the Swiss Franc, even
after the recent dollar correction. Empirically, such levels of overvaluation tend to
clear-up in the medium term, and today’s global backdrop reinforces this direction
of travel. We expect the USD to weaken in the next decade: a move in line with the
potential (and gradual) convergence of US yields and growth towards the G10
average and the stock market rebalancing towards global equities, which offer
more compelling valuations. Among others, we see the Japanese yen more than
30% below its fair value and expect it to deliver the highest returns over the next
10 years. Japan has finally become unstuck from deflation, which suggests higher
rates are in order in the country. The euro and pound sterling show similar
patterns. Higher yields relative to the pre-pandemic years dating back to the Great
Financial Crisis, a recovery in trade balances and terms of trade, and substantial
undervaluation make these currencies attractive in the medium term.
EM currencies are likely to appreciate against the US dollar over the next decade,
driven by several factors: stronger economic growth rates compared to developed
economies, rising interest rates aimed at combating inflation or attracting foreign
investment (FDI), increased FDI that boosts demand for local currencies and higher
global commodity prices benefiting commodity-exporting nations.

G10 FX over- / under-valuations vs long-term fair values

CHFUSD 6.0%
GBPUSD -12.6%
EURUSD -12.9%
CADUSD -13.0%
NZDUSD -13.9%
NOKUSD -17.8%
AUDUSD -20.1%
SEKUSD -23.9%
JPYUSD-32.3%

-35.0% -30.0% -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0%

Source: Amundi Investment Institute as of 31 December 2024.

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providers and any other professional of the financial industry.
Capital Market Assumptions Amundi Investment Institute

Asset class return distributions

We believe it is crucial for investors to consider a distribution around our expected returns for every asset
class. The width of the distribution goes hand in hand with the asset’s risk profile. Our central scenario
does not envision recessions or major troubles for the economies we cover. However, it is important to
consider that periods of declining economic growth or higher than expected inflation might happen and our
stochastic model can help us navigate those scenarios. This means that we do not look at a single
estimate of future returns, but we analyse and leverage the stochastic distribution around the
central scenario. Hence, for some equity and alternative assets we can expect a 5% chance of experiencing
negative returns over the next decade. Expected return distributions are quite a useful tool for fine tuning
investors’ Strategic Asset Allocations.

Inter-percentile range of expected returns in local currency

20%

15%

10%

5%

0%

-5%

-10%

Range (5-95th Percentile) Expected Geometric 10 Year Return Median

The chart reports the difference between the 5th and 95th percentile of the 10-year annualised return distribution for some assets (the inter-percentile
range). This represents a measure of the dispersion of expected outcomes around the central scenario. Source: Amundi CASM Model. Data as of 31
December 2024. Geometric returns, local currency. For additional information see ‘Sources and Assumptions’ at the end of this document. The forecast
returns are not necessarily indicative of future performance, which could differ substantially.

10-year versus 30-year expected returns

If developing macro and financial scenarios over a decade is a complicated task, this becomes even more
challenging when the future horizon covers 30 years. However, this effort is crucial for our investors who
need to plan their allocation over the very long term (institutional clients, mainly pension funds) and would
like to have some visibility of climate transition policies’ effects and climate risks on economies and
their financial assets as a consequence. In addition, looking at very long-term expected returns (30-years)
compared to the next ten years provides valuable insights into the relationship between asset returns and
different factors like macro trends and the reversion towards long-term equilibrium levels. Over this
horizon, credit, particularly lower-quality assets, shows more attractive returns as the effect of
valuations wanes. Similarly, US equity returns increase over the 30-year horizon, becoming the most
appealing region. On the other hand, EM equities show declining long-term expected returns across the
board, as the effects of the climate transition start to bite.

30-year versus 10-year expected returns

12% Source: Amundi CASM
Model. Data as of 31
10% December 2024.
8% Geometric returns,
local currency. For
6% additional information
see ‘Sources and
4%
Assumptions’ at the
2% end of this document.
The forecast returns
0% are not necessarily
indicative of future
performance, which
could differ
substantially.

10 year Expected Returns 30 year Expected Returns

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ASSET CLASS VIEWS

Real and Alternative

Assets in Focus

Modelling expected returns for alternative assets is a complex task for several reasons. Primarily, these
assets differ from their liquid counterparts in terms of structure, access to underlying investments, and
cash flows. Furthermore, within a single alternative asset class, there exist a variety of strategies and
managers, each of which can greatly influence the investment's final outcome.
Yet, as these asset classes can bring important benefits to investors’ Strategic Asset Allocations (SAA), we
model them in order to allow their inclusion within a robust SAA framework. As such, the assumptions
around returns and volatility differ from the historical evidence offered by industry indices, and from
investors’ potential future experiences.
Regarding returns, we estimate the market beta of alternative assets, and the additional risk premia
these assets provide in terms of illiquidity and complexity which we believe should be compensated.
Idiosyncratic return components guided by portfolio management, manager selection or specific value
creation programmes typical of these investments are not included in the expected returns and are not
factored in when designing the SAA. Our expected returns represent the average returns for
investments in alternatives, well diversified across managers and vintage years, without taking into
account the J-curve effects. Volatility assumptions are based on unsmoothed return series which
implies higher volatility for alternative assets compared to the one obtained from realised returns (IRR).
This approach is considered best practice when including them into an optimisation framework with liquid
assets. These assumptions are specific to the SAA exercise, although they could be refined for customised
analysis and portfolio implementation.
Even without considering additional alpha potential and adjusting volatility, real and alternative assets
exhibit attractive risk/return profiles. In particular, global private equity (with returns shown net of fees)
and global private debt are above the market line, while we expect their liquid counterparts to fall below.

10-year expected returns, volatility*, shortfall and liquidity risk** in local currency

Real and alternative assets

are key to enhancing risk-
adjusted returns, and
private equity and debt
appealing in search for
higher return potential.

NICOLA ZANETTI
Quantitative Analyst,
Multi Asset Solutions, Amundi.

Source: Amundi Quant Solutions, CASM Model. Data as of 31 December 2024. Real Estate refers to all property unlevered real estate. The expected returns
do not consider the potential alpha, generated by portfolio management that can be significant above all for real and alternative assets. *Expected
volatility for alternative assets is derived from unsmoothed return series. Hence, this measure of volatility will be different to the one obtained from
realised IRR. **Shortfall Risk is defined as the 95% CVaR based on the distribution of the year-on-year simulated returns at the 10-year horizon. Liquidity
risk is defined as a liquidity rank based on several characteristics including time horizon, cash flow curve, and liquidity among others. The forecast returns
are not necessarily indicative of future performance, which could differ substantially.
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Global private equity alpha dispersion by fund age

15.0

10.0

5.0
3.0 3.2 3.3 3.0 2.5 2.2
2.1 1.7 1.5 1.1
0.0 0.0 0.8 0.9

-5.0 -5.1

-10.0

-15.0
-16.5
-20.0

-25.0

-30.0
Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15
75th 50th 25th

Source: Amundi Quant Solutions based on MSCI Burgiss data as of September 2024. Dispersion of annualised outperformance over the MSCI World
Index per fund age in USD. The data covers all vintages, and private equity strategies include Buyout and Venture Capital. Geographies include North
America and Western Europe. Direct alpha is a measure of additional performance delivered by private investments on top of liquid benchmarks, which
takes into account cash flow amounts and timing.

Private equity (PE) is modelled as an aggregate of Buyout and Venture

Private equity and Capital strategies. Our 10-year expected returns (net of fees and
global idiosyncratic alpha) for global private equity are slightly above 10%,
reflecting an increase of around 1.5% with respect to last year, and an
infrastructure extra performance of 4% relative to public markets. This change is driven
present attractive by revised public equity returns and new assumptions for value added,
investment guided by a deeper look into the asset class’s performance data. Higher
interest rates compared to last year lift the cost of leverage which harms the
opportunities, with attractiveness of Buyout strategies. This could be partially offset by the
improved expected increased IRR generated by lower entry multiples due to the higher cost of
capital. The implementation of value creation plans will be key for GPs* to
returns. navigate the future landscape and are also affected by potentially expensive
leverage. Manager selection in PE is crucial, as between 25% to 50% of funds
historically underperformed against liquid benchmarks, particularly based
on fund age.
We expect demand We view global infrastructure as a broad range of strategies. We can now
break down returns into income and capital appreciation. The income
for infrastructure
component is modelled as a function of future nominal rates to capture
investments will rise indexation mechanisms, plus a spread to account for illiquidity. The capital
in the long-term, growth part is linked to public equity returns. Our 10-year expected
returns for global infrastructure are around 7.9%, which is significantly
particularly for higher than last year. This increase results from a model change and higher
energy and data equity returns, with the old framework estimating around 7%. We believe
long-term demand for infrastructure investments will rise, especially for
centres. energy and data centres. The necessity for secure energy production and
AI expansion will be key drivers, more than offsetting any potential decline
in the climate transition narrative. Demographic trends, such as
urbanisation and population growth, will further support demand for
infrastructure, especially in emerging economies.
*A private equity firm is called a general partner (GP) while the investors are called limited
partners (LPs) and generally consist of pension funds, institutional investors and wealthy
individuals. VC is Venture Capital.

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US Real Estate valuations still expensive, while European properties are more fairly valued
10%

8%

6%

4%

2%

0%

-2%
1998 2000 2001 2002 2003 2005 2006 2007 2008 2010 2011 2012 2013 2015 2016 2017 2018 2020 2021 2022 2023
Property Spread Cap Rate Annualised 10Y Govt Yield
Equilibrium Cap Rate Property Spread Equilibrium

Source: Amundi Quant Solutions based on MSCI and Bloomberg data as of 31 December 2024

Real estate returns over the next decade are projected to be between 5.3%
and 6% for European and US properties respectively. These expectations
imply an improvement versus last year of around 1.5%. The upward revision US real estate
is mainly due to higher nominal GDP assumptions which impact the growth
component of the model and mildly improved valuations. Lower transition returns are only a
costs and a return-to-office culture being pursued globally will push little higher than
returns for commercial real estate higher, which is an important
corporate bonds,
component of our reference benchmark. Across Europe, we see valuations
roughly in line with equilibrium. However, US cap rates remain below our due to expensive
estimate of equilibrium, with property spreads close to zero, which could valuations
indicate slightly expensive valuations for US properties.
Private debt assets are predominantly structured as floating rate, which
has allowed them to benefit from the current environment of generally high
interest rates. Although the upcoming quarters may pose some headwinds
for the asset class, as monetary policy across Developed Markets normalises
and drives interest rates lower, we estimate the illiquidity premium to be
consistent with last year’s assumptions. We expect the illiquidity premium to
Private debt is
remain a significant driver of direct lending returns in the long term. In the
US, which represents a significant portion of the global market, we see positioned to
higher interest rates and spreads going forward, and we expect return benefit from higher
assumptions to be higher than for euro assets. All in all, our estimates for
global private debt (levered) are around 7.3% for the next 10 years, interest rates
with a marginal uptick compared to last year.
Hedge funds’ (HF) expected return model is based on alternative risk
premia added to a cash contribution and does not consider alpha
contribution (which is unpredictable over the long run). Returns are
presented gross of fees. Cash returns, a key variable for HFs, are expected
to increase marginally due to our upward revision of real rates in the
US, providing tailwinds to the asset class. The return’s premium Hedge fund returns
component is almost unchanged versus last year, as equity and credit betas are marginally
are offset by the negative duration beta. A diversified basket of HF
strategies could deliver returns slightly below 6%, with a similar risk profile
unchanged but
to fixed income. could benefit from
HFs’ risk-return profiles, along with their low correlation to traditional asset higher cash returns
classes, positions them as a compelling source of diversification within the
SAA. As the dispersion of returns is wide in this space, manager and strategy
selection is key to further enhancing the risk-return potential.
.

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SOURCES AND ASSUMPTIONS

Sources and assumptions

Sources of CMA: CMA: Amundi Asset Management CASM Model, Amundi Asset Management Quant Solutions and
Amundi Investment Institute Teams. Macro figures as of the last release. The starting simulation date is 31 December
2024. Equity returns based on MSCI indices. Reference durations are average figures. Returns on credit assets are
comprehensive of default losses. If not otherwise specified, expected returns are geometric annualised average total
returns at the specific horizon. EM debt HC, EM-GBI, global infrastructure and hedge funds are in USD, all other indices
are in local currency. Returns are nominal and gross of fees, except private equity which are net of single manager fees.
Real estate refers to all property unlevered real estate. Hedge fund returns represent the expectations for a diversified
aggregate of Funds of Hedged Funds are gross of Fund of Funds fees. The expected returns consider the market beta
and the alternative assets risk premium. The alpha return component generated by portfolio management, strategy
selection or specific value creation programmes, which can be significant above all for real and alternative assets, is not
considered in any form.
The arithmetic average returns are derived using the price generated by our simulation engine. By definition, the
arithmetic mean is always greater than or equal to the geometric mean. In particular, higher volatility of returns and
higher frequency of returns and/or a longer time horizon will increase the difference between the two measures.
Simulated volatilities are calculated on simulated prices over a 10-year horizon. Simulated volatility for alternative assets
is derived from unsmoothed return series. Hence, this measure of volatility will be different from the one obtained from
realised IRR.
Expected returns are calculated using Amundi central scenario assumptions, which include climate transition. Forecast
and fair values up to a 3-year horizon are provided by the Amundi Investment Institute Research team (macro, yields,
spread and equity).
Forecasts for annualised returns are based upon estimates and reflect subjective judgments and assumptions. These
results were achieved by means of a mathematical formula and do not reflect the effect of unforeseen economic and
market factors on decision-making. The forecast returns are not necessarily indicative of future performance.
Data sources: Bloomberg, Cambridge Associates, Global Financial Data. Edhec Infra, MSCI and MSCI Burgiss.
Sources of sectoral expected returns: The expected returns of sectoral indices consider: 1. long-run earnings growth,
2. expected change in valuation and 3. the income component. Long-run earnings growth: for sectoral indices we
consider two distinct periods. The first two years of forecasts are based on the IBES consensus estimates, which allows
us to incorporate bottom-up considerations. The second period until the end of the decade is derived from the long-
term trend in earnings growth for a given region in our central scenario with the addition of the buyback component. It
is also tilted by a coefficient depending on the growth or value characteristics of the sector. As a final step, the outcome
is aggregated to match the long-term earnings per share trend of each region. Expected change in valuation: to assess
this repricing component, we look first at the PE ex growth of a given region and adjust it from the repricing of the
region, making sure it is consistent with the outcome of the regional equity section, which integrates the climate risk by
definition at a regional level. Then from this adjusted regional Target PE, we derive a Target PE for each sector,
depending on its long-run earnings growth (as defined previously). Finally, we compare this sectoral Target PE with its
average historical PE to get the sector valuation change and we adjust for ESG and climate change flows as well a sector
low carbon and NetZero risk premia. For income, we use the average of the last three years’ consensus dividend yield of
each sector, here again adjusted to be consistent with the regional outcome.
G10 FX Fair Valuation models: The literature is full of theoretical foundations at the basis of currency fair valuation. Our
battery of models leverages two main concepts: 1) Purchasing Power Parity equilibria (which in turn expresses FX
equilibria as a function of relative price dynamics across countries) and 2) Behavioural Exchange rate equilibria (where
we focus on short to long-term fundamental drivers. Purchasing Power Parity models: Standard PPPs rely on CPI
differential, we enrich our framework to take into account two additional variations: 1) PPP based on PPI differential (to
take into account the differential in costs of production) and 2) a standard PPP but adjusted for productivity (we proxy
with CPI-PPI differentials, following the Balassa-Samuelson framework). Both CPI and PPI induce a negative contribution
to the FX (i.e. higher inflation means a depreciation in the long run), whilst higher productivity (i.e. higher CPI-PPI
differential) empirically translates into stronger FX Behavioural Exchange rate models: We leverage here on the
theoretical findings of Clark and McDonald and estimate FX equilibrium based on short to medium- and long-term
fundamental drivers. On top of inflation (our longest-term driver, given the empirical convergence rate from spot), we
do consider 1) interest rates differentials, 2) terms of trade, 3) fiscal spending, 4) productivity (GDP per capita) and 5) the
degree of openness of each G10 economy.

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43 investment services providers and any other professional of the financial industry.
Capital Market Assumptions Amundi Investment Institute

SOURCES AND ASSUMPTIONS

CASM model
We believe capital markets are not always efficient consensus for the short-to-medium-term outlooks for
and they deviate from long-term fair values. We follow macro and financial variables for each region under
a disciplined approach to asset allocation that blends consideration (US, Eurozone (core, semi-core and
quantitative input and qualitative assessment to identify periphery), UK, Japan, China, India, EM area). The models
superior asset allocations. Our multivariate approach to are calibrated to be consistent with these outlooks and
modelling assets and liabilities focuses on complex long-run estimates. At each step in the process, results are
relationships between risk factors over multiple analysed against stylised facts and checked for
investment horizons. Simulating asset prices that are consistency. The estimation process for each region
consistent with our risk factor models allows us to capture progresses from calibrating macro and financial variables
complex market dynamics. Macro and financial risk factors to simulating asset prices, where asset prices are driven
explain asset returns and the correlations between assets. by the underlying macro and financial variables.
Cascade Asset Simulation Model (CASM) is a platform Price returns are generated using a Monte Carlo
developed by Amundi in collaboration with Cambridge simulation. Stochastic generation of risk factors and price
University*. CASM combines our short-term financial and scenarios allows us to analyse a wide range of possible
economic outlooks. It incorporates medium-term outcomes and control the uncertainty surrounding
dynamics into long-term dynamic trends, to simulate these. We can change starting assumptions and see the
forward-looking returns for different asset classes over effect on possible future asset prices. The platform allows
multiple horizons. CASM generates asset price scenarios us to simulate consistent scenarios across any instrument
and underlying economic and financial factors that in a multi-asset portfolio, a feature that is particularly
determine Amundi’s expected returns. It is a valuable tool relevant for institutional investors with long time horizons.
for strategic asset allocation and asset-liability The CASM platform covers macro and financial variables
management analysis. The flexibility of CASM allows us to for major regions, in particular the US, UK, Eurozone,
provide highly customised solutions to our clients. Japan, China, India and Emerging Markets as an
We estimate model parameters quarterly to incorporate aggregate. Models are constructed to capture the main
new market data and our short-term outlook. The process drivers of economic variables that affect asset prices. The
for calibrating models that reflect our view of economic definition of the building blocks within the cascade
and financial market trends is a close collaborative structure has been enhanced to incorporate the
process between many teams at Amundi. We reach a climate policy actions and their implications.

Cascade Asset Simulation Model (CASM) is a platform developed by Amundi used to simulate forward-looking returns and derive expected returns
(see a more detailed description at the end). We distinguish between macro-economic, financial and pricing models as described in the following chart:

The architecture of CASM can be described in two

dimensions. The first dimension is a “cascade” of
models. Asset and liability price models are made up
of market risk factor models. Market risk factor
models are made up of macroeconomic models.
Initially proposed by Wilkie (1984) and further
developed by Dempster et al. (2009), this cascade
structure is at the root of the platform’s capability to
model linear and non-linear relationships between
risk factors, asset prices and financial instruments.
The second dimension is a representation of the
future evolution of the aforementioned “cascade”
effect. The unique formulation allows us to simulate
asset price scenarios that are coherent with the
underlying risk factor models. In the short term,
CASM blends econometric models and quantitative
short-term outlooks from in-house practitioners. In
the long term, we assume the market variables are
subject to a mean reverting process, defined formally
through structural break analysis and general
equilibrium models. The short term evolves into a
long-run state through the medium-term dynamic
driven by business cycle variables.
Source: Amundi Asset Management – CASM model.
*A.D. Wilkie. (1984), A stochastic investment model for actuarial use [with discussion]. Transaction of the Faculty of Actuaries, 341-403
Dempster, M., Germano, M., Medova, F., Murphy, J., Ryan, D., & Sandrini, F. (2009), Risk Profiling Defined Benefit Pension Schemes. Journal of Portfolio
Management, Summer (2009)

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Capital Market Assumptions Amundi Investment Institute

AUTHORS

EXECUTIVE SPONSORS CHIEF EDITOR

VINCENT CLAUDIA
MONICA PHILIPPE JOHN
MORTIER BERTINO
DEFEND D’ORGEVAL O’TOOLE HEAD OF AMUNDI
HEAD OF AMUNDI GROUP CIO DEPUTY CIO MULTI-ASSET INVESTMENT INSIGHTS,
INVESTMENT GROUP CIO SOLUTIONS PUBLISHING AND CLIENT
INSTITUTE DEVELOPMENT, AII*

CMA QUANTITATIVE TEAM CMA EDITORIAL TEAM

VIVIANA THOMAS NICOLA LAURA FIOROT GIULIO LOMBARDO

GISIMUNDO WALSH ZANETTI, CAIA HEAD OF INVESTMENT
INSIGHTS & CLIENT DIVISION,
PUBLISHING SPECIALIST,
AII*
HEAD OF SENIOR QUANTITATIVE
AII*
QUANTITATIVE QUANTITATIVE ANALYST, MULTI
SOLUTIONS, MULTI ANALYST, MULTI ASSET SOLUTIONS,
ASSET SOLUTIONS, ASSET SOLUTIONS, AMUNDI
AMUNDI AMUNDI

MACRO ASSUMPTION & THEMES DESIGN AND DATA VISUALIZATION

ALESSIA BERARDI MAHMOOD PRADHAN CHIARA VINCENT

HEAD OF EMERGING MACRO HEAD OF GLOBAL BENETTI FLASSEUR, CAIA
STRATEGY, AII* MACROECONOMICS, AII*
DIGITAL ART DIRECTOR AND GRAPHICS AND DATA VISUALIZATION
STRATEGY DESIGNER, AII * MANAGER, AII *

DIDIER BOROWSKI ANNALISA USARDI, CFA

HEAD OF MACRO POLICY SENIOR ECONOMIST, HEAD OF
RESEARCH, AII* ADVANCED ECONOMY MODELLING,
AII*

ASSET CLASS EXPERTS

PIERRE BROUSSE DEBORA DELBÒ LORENZO PORTELLI

EQUITY STRATEGIST , AII* SENIOR EM MACRO STRATEGIST, AII* HEAD OF CROSS ASSET STRATEGY, AII*

FEDERICO CESARINI CLAIRE HUANG GUY STEAR

HEAD OF DM FX STRATEGY, AII* SENIOR EM MACRO STRATEGIST, AII* HEAD OF DEVELOPED MARKETS STRATEGY, AII*

JOHN COADOU ERIC MIJOT AYUSH TAMBI

EQUITY STRATEGIST , AII* HEAD OF GLOBAL EQUITY STRATEGY, AII* SENIOR EQUITY STRATEGIST , AII*

ACKNOWLEDGMENTS
We also would like to thank the Amundi Real Assets team, Sergio Bertoncini, Jean-Baptiste Berthon, Nadia Bobbio, Marie Brière,
Rebecca Dal Bon, Delphine Georges, Karine Huynh, Swaha Pattanaik and Armelle Sens for their contributions.

* Amundi Investment Institute

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 Amundi Investment
Institute
In an increasing complex and changing world, investors need to
better understand their environment and the evolution of
investment practices in order to define their asset allocation and
help construct their portfolios.
This environment spans across economic, financial, geopolitical, societal and environmental
dimensions. To help meet this need, Amundi has created the Amundi Investment Institute. This
independent research platform brings together Amundi’s research, market strategy, investment
themes and asset allocation advisory activities under one umbrella; the Amundi Investment Institute.
Its aim is to produce and disseminate research and Thought Leadership publications which anticipate
and innovate for the benefit of investment teams and clients alike.

Get the latest updates on:

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Date of first use: 31 March 2025.
DOC ID: 4360835
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