1、10 September 202404The structural challenges for financial marketsAllianz Research10Why we expect returns to halve through 2050Long-run capital market returns in 16Comparison with other publica-tions and historytimes of climate changeLessons from the American playbook 19Volatility,corre-lation and a

2、sset allocation23Policy recommendations Allianz Research The materialization of physical climate risks is driving up disaster-related costs,which will ultimately translate into increased economic volatility,higher average inflation and lower real growth.What will this mean for investors?In this repo

3、rt,we try to answer the three biggest questions by looking at US markets.First,through which channels will climate change affect your portfolio?Second,what will it mean for expected returns in different asset classes?Third,how do correlations and volatility expectations affect the optimal compositio

4、n of your portfolio?The inputs for our financial analysis are drawn from the“Below 2C”and“Current Policies”scenarios from NGFS,with the latter“Hot House”scenario having more severe outcomes on the economy and financial markets.Both scenarios also take into account other structural trends in particul

5、ar the demographic slow-down.Interest rates are set to fall and even become negative in real terms in the 2040s.Long-term interest rates are projected to decline,averaging around 2.5%until 2050 with only minor differences across different climate scenarios.Higher inflation will gradually push real y

6、ields into negative territory reaching-0.5%(Below 2C)and-0.7%(Current Policies),respectively,by 2050.Equity investors will face a future of higher risks and lower returns amid rising risk premia and lower dividend growth.Investors are likely to discount future returns at a higher rate due to increas