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Chapter 2

The Decade Ahead

Dive into the “Five Ds,” scenarios and key questions for the future, and our asset class expectations.

The “Five Ds”

The economic aftermath of the pandemic has been wide-ranging and often unexpected. Inflation soared and stayed high. Interest rates jumped to levels not seen in more than 15 years. Yet despite rising rates, unemployment stayed low and growth remained robust.

The unusual mix of economic outcomes in recent years begs the question of whether the “new world” post-pandemic has also brought with it a new macroeconomic regime, in which the global economy shifts from one characterized by muted demand and excess supply, to one of constrained supply and robust demand.

The answer to that question will be defined by developments in what we call the “Five Ds”: deglobalization, demographics, digitalization, decarbonization, and debt.

Key questions

Scenarios

Drivers could include high rates of investment linked to digitalization (AI), decarbonization, and defense. In this scenario, we would expect strong earnings growth and good performance from equities, but more muted initial performance from bonds as investors price interest rates staying higher for longer.

Potential drivers of this scenario include a prominent role for AI or a swing back toward globalization. We think this scenario would be favorable for both equities and bonds. We would expect good earnings growth to support equities, and lower interest rate expectations to support bonds.

Potential drivers include aging populations or the promise of AI and renewable energy not meeting expectations. This scenario would likely be initially positive for bonds as financial repression is used to manage rising debt burdens. Equity multiples could be supported by central bank stimulus, but companies could also struggle to deliver earnings growth.

Drivers of this trend could include deglobalization, geopolitical tensions, and climate change. In this scenario, we would expect both bonds and equities to perform poorly (at least in real terms) as higher rate expectations and challenges to real earnings growth weigh on performance. Nominal returns for equities could still be positive.

Asset class expectations

Over the coming decade, we believe that cash will underperform other major asset classes, particularly in scenarios in which central banks return to financial repression. We see the highest returns in equities. Prospective fixed income returns should continue to improve. Good returns in underlying equity and bond markets should be supportive for the returns of alternative assets.

Other chapters

Chapter 1 The Year Ahead

Discover our scenarios, key questions, and forecasts for 2024, plus take a look back at 2023.

Chapter 3 Top investment ideas

Explore our Messages in Focus to learn about how we think you can add value to your portfolio.

Chapter 4 Getting in balance

Find out how we think investors can protect and grow their wealth for the year and decade ahead.

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This report has been prepared by UBS AG, UBS AG London Branch, UBS Switzerland AG, UBS Financial Services Inc. (UBS FS), UBS AG Singapore Branch, UBS AG Hong Kong Branch, and UBS SuMi TRUST Wealth Management Co., Ltd..