Our expectations for returns, volatilities and correlations. Use our interactive version to download the excel in your chosen currency.
Assumptions matrices
The assumptions are not designed to inform short term tactical allocation decisions. Our assumptions process is carefully calibrated and constructed to aid investors with strategic asset allocation or policy-level decisions over a 10- to 15-year investment horizon.
Our assumptions can be used to:
Develop or review a strategic asset allocation
Understand the risk and return trade-offs across and within asset classes and regions
Assess the risk characteristics of a strategic asset allocation
Review relative value allocation decisions
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These articles look into issues likely to have a profound and protracted impact on the global investment landscape.
Thematic Insights
Key points
Deglobalization is not inevitable. We expect a multi-polar world in which trading blocs become more politically aligned.
As globalization evolves, trade intensity in goods will likely decline. But services could flourish in a global economy that is more virtual.
In any disruptive environment, there will be winners and losers – new opportunities and risks – as investors adapt and respond to change.
Is globalization – an era of increasingly close economic integration- about to go into reverse? We don’t think so.
Globalization will not unravel but it will evolve, in our view. We see a wide spectrum of possible outcomes. The most likely scenario is a multi-polar world in which trading blocs become more politically aligned. Overall, the global economy could become less efficient.
Precisely how globalization evolves will likely depend on the role of innovation and automation, demand growth in new markets, as well as rising (or declining) nationalism and shifts in regulation on climate, taxes, and data.
There will be winners and losers by geography and industry. For example:
Low wage economies that have derived the greatest benefit of decades of globalization appear at greatest risk. Those yet to partake in export-led growth may see development curtailed.
Greater regionalization as supply chains diversify and production moves closer to demand would benefit Asia and an increasingly wealthy consumer base.
Services sector takes the lead
As globalization evolves, trade intensity in goods will likely decline. But services could flourish in a global economy that is more virtual. Services industries should benefit from investment in skilled labor and labor-saving technologies. Economies such as India and the Philippines, with large populations of English speakers and established infrastructure, may also benefit and attract more foreign capital.
While regulations may tighten on the technology sector broadly, certain technology companies will benefit from new demands. The rise of “digital sovereignty” as a national security issue likely means increased spending on cybersecurity. Even before the Russian invasion of Ukraine, it was estimated that cybersecurity spending would surpass USD 200 billion by 2024, up 43% from 2021.
As the threat and costliness of security breaches worsen, companies and governments are highly incentivized to invest in protection. Similarly, defense sectors could benefit from a more tense and fragmented world.
Meanwhile, robotics and automation should become increasingly important and cheaper as replacements for workers, and as access to low-wage labor becomes more limited. We anticipate this trend continuing as aging demographics in developed countries further strains the labor supply and production shifts location to serve growth in new markets.
China’s shifting roles and relationships
What role will China play in the evolution of globalization?
China seems increasingly at risk of reduced trade with the rest of the world following a series of U.S. and European government actions aimed at regulating and curbing reliance on China. In such a scenario, other economies may see benefits. The rise in Chinese wages has already helped the wider Asian region as production has moved to relatively lower cost markets close to the source of final demand.
The shift to greater supply chain diversification could accelerate this trend, especially for manufacturers of consumer products such as textiles and technology hardware. It could also support infrastructure investment.
Investors adapt to change
The global economy has clearly benefited from 70 years of rising globalization. We expect a reconfiguration ahead, rather than a reversal. It will be a disruptive environment in many ways, with new opportunities and risks as investors adapt and respond to change.
Key points
Global population growth creates dramatic challenges and opportunities. Key for investors: demographics’ impact on economic growth, consumption patterns, infrastructure needs and the use of finite resources.
Countries are not guaranteed a demographic dividend. Policy, we believe, will be a differentiator. We created a set of scores to help screen for economies with solid national and corporate policies.
Timely investment is needed to cope with the stress growing populations put on the planet. Investment opportunities exist in green infrastructure, agriculture technologies, alternative sources of protein and reforestation.
By the end of this century, the global population is set to reach 10.6 billion, creating dramatic challenges and opportunities. “Younger” economies with a rising proportion of working-age people (15–64) stand to gain a demographic dividend – faster economic growth – than economies with a large proportion of older adults. In sub-Saharan Africa, the Middle East and parts of Asia, the working-age populations are growing the fastest.
Of primary importance for investors are these demographics’ impact on economic growth, consumption patterns, infrastructure needs and the harvest and use of finite resources.
Economic success based on demographics alone is far from guaranteed. Which young economies seem prepared to harness a demographic dividend?
We believe sound policy will be the differentiator. Countries with strong national and corporate governance frameworks, sustainable infrastructure and integration into global supply chains will be the likely winners.
Absent these, important risks arise. Economies that fail to properly invest in their fast-growing working-age labor forces, build out sufficient infrastructure (in time) and ensure the sustainable use of their natural resources could face disastrous consequences.
We have created sets of scores that aggregate indicators of key policy. Together, our four scores offer a multifaceted approach that can help investors decide where they might best take advantage of population growth.
To be sure, income inequality is a challenge. Still, investment opportunities to serve young consumers should be abundant in high-scoring younger economies. Rising numbers of young households in these economies are set to boost consumption growth for clothing, educational services and transportation.
But population growth also means more intensive use of energy, water, food, ecosystems and infrastructure. To alleviate the inevitable stress on the planet, adequate and timely investment is needed in sustainable solutions. Exciting investment opportunities can be found in solutions to the challenges – in rethinking infrastructure, energy and food consumption habits; in more sustainable land use, agriculture and forestry. The themes include green infrastructure, sustainable agriculture technologies, alternative sources of protein and reforestation.
Our scores:
Top-Down score: Measures key sovereign policies and institutions (rule of law, economic freedom, education and others). High scores may indicate appealing government bonds and currencies. India, Vietnam, Malaysia, South Africa, Saudi Arabia and the United Arab Emirates (UAE) show promise.
Bottom-Up score: Captures corporate governance. High scores may indicate appealing equity and credit investments. Malaysia and South Africa score well here.
Migration-Productivity score: Reflects how well an economy is capitalizing on migration trends. High-scoring Canada, UK, U.S., Germany and France can potentially deliver better growth results than their demographics alone suggest.
Energy Transition Momentum score: Captures the potential trajectory of green energy in different economies. Kenya, Vietnam and the UAE stand out.
