UBS Year Ahead 2024

Year Ahead 2024
A new world
Chief Investment Office GWM | Investment Research
Year Ahead 2024 – UBS House View
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.. Please see important
disclaimers at the end of the document.

Year Ahead 2024 – UBS David

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4 Year Ahead 2024 – UBS House View

Year Ahead 2024
Foreword
Welcome to the Year Ahead 2024.
2023 was a historic year for markets. Bond yields reached their highest levels in more than
15 years. The first trillion-dollar artificial intelligence company was crowned. The robust
health of the US economy, despite major rate rises, confounded expectations.
Of course, the year was also a historic one for us at UBS, and I would like to take the op-
portunity to thank you for continuing to place your trust in us. It’s our privilege to help
you realize your financial goals in the coming year and beyond.
In this Year Ahead, we look ahead to what we call “a new world,” one characterized by
economic uncertainty and geopolitical instability, but also profound technological change.
We think it will pay to focus on quality in 2024. As interest rates fall, we expect quality
bonds to deliver both attractive income and capital appreciation. And we believe it will be
quality stocks, including many in the technology sector, that will be best positioned to
grow earnings in a slowing global economy.
As the new world develops, and as the trends of deglobalization, demographics, digitaliza-
tion, decarbonization, and debt have a growing impact on economies and markets in the
years to come, we expect to see a wave of disruption across the technology, energy, and
healthcare sectors in particular. We expect investment success over this time frame to be
driven by identifying the “leaders from disruption,” and the associated investment oppor-
tunities in both public and private markets.
We hope this Year Ahead 2024 provides you with the right context, analysis, and ideas to
help navigate your portfolio through a new world. We look forward to partnering with
you on that journey.
Iqbal Khan
President, UBS Global Wealth Management
5
A new world
08
The Year Ahead
Outlook Key questions Investing

for 2024 in 2024
09 A new world 13 What’s the outlook 25 Manage liquidity
for growth?
27 Buy quality
16 What’s the outlook
for rates and yields?
31 Trade the range in
19 How will politics currencies and
shape markets? commodities
34 Hedge market risks
36 Diversify with
alternative credit
6
A new world
38
The Decade Ahead
Investing in the Investing in the Looking back and

decade ahead future looking ahead
39 The decade ahead 51 Pick leaders from 62 2023 in review
disruption
43 Asset class 63 Forecasts
55 Capture growth with
expectations
private markets
45 What will generative 58 Getting in balance in

AI mean for markets the year and decade
and economies? ahead
To find out more about the

Year Ahead 2024, visit
ubs.com/yearahead
7

Scott Webb | Unsplash

8

A new world
The economic and political aftereffects of the global pandemic continue to
reverberate, years after its onset. We are in a new world. It’s time to build a
plan, get in balance, and stay disciplined, yet agile.
Never before in human history has a pandemic caused gov-

ernments to forcibly and almost simultaneously shut down
their economies and then shock them back to life. The re-
sult? The return of inflation, labor market stress, and a
surge in interest rates, bond yields, and government debt.
Mark Haefele
Chief Investment Officer
At the same time, wars in oil-producing regions, a matur-
Global Wealth Management ing China, and the rise of national industrial and environ-
mental policy are remaking the geopolitical sphere. And
while the old threat of great powers at war seems to be re-
turning, new developments in artificial intelligence (AI)
might also transform humanity.
This leaves us in a new world, one defined by economic

uncertainty and geopolitical and environmental instability,
but also profound technological change.
What should we expect in the year ahead?

First, we expect slower growth for the US economy in 2024
as consumers face mounting headwinds. We expect Euro-
pean growth to remain subdued, and China to enter a
“new normal” of lower, but potentially higher-quality,
growth. We think this environment speaks in favor of tilt-
9
A new world
ing equity allocations toward quality stocks, We think AI will spur meaningful value cre-
including in the technology sector, that can ation across a range of sectors. For now, in-
deliver earnings growth even against a vestors have focused on the likely beneficia-
backdrop of slowing global growth. ries from AI hardware and platforms, but
the potential spillover into applications will
Second, we expect central banks to start reach far and wide.
cutting rates in 2024. In our view, govern-
ment bond markets are overpricing the risk A new normal is coming into view for
that high interest rates will represent the China. Constraints on old growth models
new normal, and we also expect yields to will likely see slower growth than the norm
fall in 2024. This speaks in favor of limiting over the past two decades. Investments
cash allocations and locking in yields in aligned with the country’s efforts to boost
quality bonds. higher value-added manufacturing, drive a
green transition, and develop greater self-
Third, we expect politics to have an out- sufficiency should be best positioned.
sized role in 2024. The US presidential elec-
tion, the Israel-Hamas and Russia-Ukraine Concerns about climate change and na-
wars, and the ongoing rivalry between the tional security will drive a global transition
US and China could all have global market toward decarbonization. Achieving a com-
repercussions. And political decisions to en- plete transition to a carbon-zero economy
gage in large and unfunded fiscal spending is a complex undertaking. But significant in-
create both upside and downside invest- vestment in decarbonization projects
ment risks to base case economic forecasts. should mean high growth potential for so-
Investors should prepare to hedge market lution providers in the space.
risks. We see capital preservation strategies,
macro hedge funds, oil, and gold as hedges Government investment in technological,
to focus on in 2024. environmental, energy, and physical secu-
rity—as well as aging populations—means
A decade of transformation debt levels are likely to rise. We believe
As we look to the decade ahead, we expect higher debt levels will contribute to higher
the effects of AI, China’s maturing econ- volatility in fixed income, but also more
omy, the energy transition, and high global opportunities for private investors to sup-
debt levels to grow larger still. ply financing. These trends speak to the
10
A new world
importance of building alternative assets Third, stay disciplined yet agile. Discipline is
into diversified portfolios for investors able key to successful investing: Given the right
to manage the specific risks associated “core” strategy, the adage of “time in the
with them. market, not timing the market” has held
true over time. But equally, markets evolve
What should investors do? and investors' needs change. Investors
First, make sure you have a plan. In this should therefore regularly review their
new world, data has become more avail- plans for strategic allocations, tactical allo-
able but not necessarily more informative. cations, and “satellite” investment ideas.
The pervasiveness of social media means
each data point is amplified more than ever Lessons from “the old world”
before. The result? The power of stories to As we enter a new world, it would be easy
influence behavior has grown, information to feel a sense of trepidation. Yet it’s worth
(or disinformation) can impact markets remembering that since 1900, the world
faster than ever, and popular opinion can has seen two world wars, nine pandemics,
flip in a matter of days. A clear plan, linking hundreds of civil or regional wars, more
strategies with goals and values, can help than 2,000 nuclear detonations, revolutions
investors stay focused on the bigger picture in both the world’s largest and most popu-
in an increasingly noisy world. lous countries, at least a dozen hyperinfla-
tions, over 15 bear markets, over 20 reces-
Second, investors should get in balance. In sions, and almost 200 sovereign defaults or
our base case, we expect positive returns debt crises.
for balanced portfolios in 2024, and our
scenario analysis suggests that multi-asset When it comes to investing, all these years
diversification should also prove effective at of adversity have taught us three things:
hedging risk scenarios. Over the longer the value of global diversification, the virtue
term, we believe that investors who keep a of patience, and, most important, the resil-
diversified multi-asset portfolio—traditional ience and ingenuity of humankind.
or sustainable—as a “core” investment
strategy are most likely to successfully pro- We wish you a happy, healthy, and pros-
tect and grow real wealth over time. perous year ahead.
11

Redd F | Unsplash
12
Key questions for 2024
What’s the outlook

for growth?
We expect the strength of the US economy in 2023 to give way to slower,
though still positive, growth in 2024 as consumers face mounting headwinds.
We expect European growth to remain subdued, and China to enter a “new
normal” of lower, but potentially higher-quality, growth.
US think there is cause for optimism this time.

A long-awaited slowdown. US economic First, job security among the key spending
growth was more resilient than expected in group of middle-income households is likely
2023, with the support of excess consumer to remain high. Second, we expect solid in-
savings. In 2024, we think growth is likely to vestment spending related to artificial intelli-
slow. High interest rates are likely to curb the gence, semiconductors, infrastructure, and
propensity to spend: Items often purchased green energy. Third, strong household and
by borrowing, like houses and cars, are the business balance sheets should mean a de-
least affordable they have been in years. gree of resilience against negative shocks.
Households are having to grapple with the
end of childcare subsidies, the trimming of Europe
Medicaid rolls, and the resumption of stu- Some support. Real consumer incomes
dent loan payments. And we think savings should rise because of falling inflation and
rates are likely to rise as confidence ebbs. a resilient labor market, and we expect
those to translate into higher consumer
No significant contraction. While we expect spending. Households have already accu-
a slowdown, we do not expect a significant mulated precautionary savings and reduced
contraction in activity. It would be histori- debt. Supportive fiscal policy, particularly in
cally unusual for the US economy to avoid a southern and eastern Europe, should also
recession after a period of rate hikes, but we stimulate growth, as funds from the
13
Figure1
NextGenerationEU fiscal plan drive invest-
ment in infrastructure and low-carbon en- US and China to become drivers of
ergy production. slowing global growth
Global GDP growth forecasts and main contributors to
the slowdown
Headwinds remain. We expect European
growth to remain sluggish overall. Mone- 3.1% US

tary policy will likely stay restrictive through Europe
Japan
next year, even after the three rates cuts we
China
expect. Bank lending will likely be con-
strained by pressure on bank profitability,
less generous support from the European India

RoW
2.6%
Central Bank (ECB), and concern over remu-
neration of reserves. Subdued external de-
mand and high energy costs are likely to
weigh on exporters and manufacturers.
2023 2024
Negative contributions Positive contributions

China
A new normal. We expect the Chinese Note: RoW = Rest of the world
Source: UBS, as of November 2023
economy to grow by 4.4% in 2024, below
an estimated 5.2% in 2023, weighed down
by muted consumption, slow external de- off, however. Beijing recently announced a
mand, and challenges in the property sec- CNY 1 trillion bond issuance program that
tor. Over the longer term, a shrinking labor could lift next year’s GDP growth by 0.4–
force, structural limits to trade-driven 0.8 percentage points, and this could fore-
growth, and a fragile geopolitical balance shadow more policy action in 2024. Longer
mean the era of over 6% annual growth term, we expect consumer spending, lead-
for China is likely behind us. ership in the carbon transition, and indus-
trial supply chain upgrades to provide dura-
Still a growth engine. A new normal for the ble and quality growth drivers.
Chinese economy is no reason to write it
What will China’s new normal mean

for the decade ahead?
Read more in the Decade Ahead section at ubs.com/yearahead
14
Investment implications
Buy quality bonds. We think slower UBS real GDP growth forecasts
growth will lead to lower interest rate
expectations, and lower yields, in 2024, 2023 2024
making high-quality bonds an attractive
investment opportunity. For more, see
page 27.
2.4% 1.1% US
Buy quality stocks. We expect equity mar-

kets to rise broadly, but particularly like
0.5% 0.6% Eurozone
quality companies, including those in the

technology sector, with the potential to 5.2% 4.4% China
grow earnings against a backdrop of less
robust economic activity. For more, see Source: UBS, as of 13 November 2023
page 28.
Lessons from history
Can the Fed defy history and avoid causing a

recession?
History suggests that aggressive monetary tions that allowed this included future infla-
tightening often, but not always, leads to a tion expectations being well anchored, a
recession. tight labor market, and sizable household
savings—three features that are present in
Since 1971, there have been eight cycles of today’s environment. The recession in 2020
interest rate hikes before the current one in was triggered by the coronavirus pandemic.
which the Federal Reserve raised rates by
more than 200 basis points. A recession fol- Our base case remains that the US will
lowed in five of those instances, including achieve a “soft-ish” landing in 2024,
in all four when rates were hiked by 375bps thanks to robust labor demand, solid in-
or more. In two, 1983–84 and 1994–95, vestment spending, and strong consumer
the Fed achieved a soft landing. The condi- and business balance sheets.
15
What’s the outlook

We expect central banks to commence rate-cutting cycles in 2024. In our
view, government bond markets are overpricing the risk that high interest
rates will represent the new normal, and we expect yields to fall in 2024.
Inflation and rates Figure2

Back to normal. Inflation made progress to- Our expectations for central bank
ward central bank targets in 2023, and in rate cuts
2024 we believe that journey will continue. Cumulative rate cuts in 2024, in bps, and month of first
In our base case, we expect US and Euro- rate cut (in parentheses)
zone core consumer price inflation to end
2024 in the 2–2.5% range. Key drivers in-
clude falling homeowner-related inflation,
weaker consumer demand, and slower
wage growth. 4.4%
50 50
Expect lower rates. We believe that the Federal Reserve Swiss National
(July) Bank
combination of lower growth and lower in- (September)
75 75
flation should lead to interest rate cuts in Bank of England European
(May) Central Bank
2024. Although inflation will likely remain (June)
above the 2% targets through most, or all, Source: UBS, as of November 2023
of the year ahead, we believe policymakers
will be sufficiently confident by midyear
that inflation is falling sustainably toward
16
target. Our base case is for the ECB and year. As we discuss in more detail in our
Bank of England each to cut rates by 75bps bonus content (see link below), we esti-
in 2024, while we expect the Fed and Swiss mate the equilibrium 10-year yield to be
National Bank to ease by 50bps next year. 3.5% (based on a combination of inflation
of 2–2.5%, a neutral real interest rate of
Yields 0.5–1%, and a term premium of 0.5%).
Markets pricing higher-for-a-lot-longer.
Markets are implying that the Fed will not Investment implications
cut rates below 4.2% over the next five Manage liquidity. With interest rates and
years. While it is possible that interest rate expectations set to fall, we believe in-
rates could stay higher for longer than we vestors should ensure they don’t hold too
expect, we consider it highly unlikely that much cash, and look to optimize potential
the Fed will not need to cut rates below returns. For more, see page 25.
4%, or otherwise intervene in markets,
within the next half-decade. Over that Buy quality bonds. We believe that quality
time frame, at least one recession, period bonds have attractive yields and the poten-
of low inflation, or financial turbulence tial for capital appreciation if markets start
should be considered likely. Political deci- to price lower expectations for interest rates
sions to engage in large and unfunded fis- in 2024. For more, see page 27.
cal spending create risks to this view.
Expect bond yields to fall. We expect

slower economic growth in 2024 to lower
interest rate expectations, both over the
short and longer term. Commensurate to
this, we expect the 10-year US Treasury
yield to fall to 3.5% by the end of next
Are higher debt and higher rates

the new normal?
Read more in the Decade Ahead section at ubs.com/yearahead
17
What does history suggest about the path

Peak rates don’t last long. In the 10 in- Yields come back to earth. While the recent
stances of Fed rate-hike cycles since 1970, rise in 10-year US Treasury yields has been
interest rates stayed at the peak for a me- swift, it is not without precedent: Since
dian of three months. The shortest “hold” 1962, there have been 16 episodes in
was just one month, and the longest 15. which the long yield has climbed by more
than 100bps over six months. All but one of
Cuts can be sharp. When the Fed started them (1979–80) were followed by a decline
cutting rates, it cut by an average of in yields over the following 12 months. We
260bps in the first 12 months (excluding believe this time will be no exception.
1987 and 2006, when rates rose again
after a pause) and 410bps within the first
24 months. Today, markets are pricing
150bps of easing within the next two years.
Figure3
Rate cuts can be sharp

Federal funds rate, in %, with US recession periods shaded
25
20
15
Recession
10 triggered by
pandemic
5
0
1971 1981 1991 2001 2011 2021
Source: Bloomberg, UBS, as of November 2023
18
How will politics

shape markets?
We expect politics to play an outsized role in 2024. The US presidential elec-
tion, the ongoing Israel-Hamas and Russia-Ukraine wars, and the rivalry
between the US and China could all affect markets globally. Investors
should prepare for bouts of politically driven volatility and consider hedges.
US presidential election the election or even preventing a candidate

Sizing the odds. President Joe Biden and for- from winning the majority of the Electoral
mer President Donald Trump currently hold College votes, throwing the election deci-
significant leads in their quest for the nomi- sion to the House of Representatives.
nation from their respective political parties.
A divided Congress is likely. We think a di-
Betting markets ascribe a 70% chance of vided Congress is the most likely scenario
Biden becoming the Democratic nominee— after the elections in 2024. We expect the
an unusually small number for an incum- Republicans to assume control of the Sen-
bent seeking reelection. Meanwhile, al- ate because they have fewer seats to de-
though Trump has an 80% chance of fend. However, we believe the Democrats
securing the Republican nomination accord- have a higher chance of retaking control of
ing to betting markets, legal obstacles could the House, with some Republicans facing
undermine his appeal to unaffiliated voters tough reelection campaigns in the after-
and reduce his chances of securing the math of the ousting of former Speaker
presidency—the markets are putting this Kevin McCarthy.
probability at 35% (and Biden at just 30%).
An outside risk is that this dissatisfaction A divided Congress would mean that legis-
could lead to third-party candidates tipping lation would need to be passed on a biparti-
19
san basis. This would reduce the likelihood Russia-Ukraine war

of sweeping domestic reforms—such as At the time of writing, the war is having a
changes to tax or health policy, or a rollback relatively limited day-to-day impact on
of climate spending—being introduced, but global financial markets. That said, the tight-
the sitting president would retain discretion ening in global oil markets has left the world
on foreign policy, including areas like trade more vulnerable to other supply shocks.
relations with China and the US’s stance
with respect to the Russia-Ukraine and Is- America first? If Biden were to secure re-
rael-Hamas wars. election, we would expect a continuation of
the status quo in which the US supplies fi-
Israel-Hamas war nancial and military support to Ukraine.
Amid a growing humanitarian crisis, the Is- However, if Trump runs on an “America
rael-Hamas war remains highly fluid. At the First” platform and is victorious, we would
time of writing, the conflict remains a con- expect US financial and military support for
tained confrontation confined to Hamas Ukraine to significantly decline. This would
and Israel in the geographical areas under leave European governments needing to
their control. The risks, however, appear materially increase spending—a fiscal risk—
tilted toward the downside case of a re- or accept potential Russian military gains.
gional escalation that draws in other na-
tions. Israeli ground operations in Gaza, US-China rivalry
and exchanges of fire between Israel and Trade and tech. US-China trade relations
Hezbollah and other Iranian proxies, point appeared to have found a new uneasy
to the risk of escalation. equilibrium in 2023, but China’s efforts to
become self-sufficient in semiconductor
Impact on oil markets. In our base case, we production are testing this balance. The
expect Brent to trade in a USD 90–100/bbl White House is attempting to block Chi-
range. But if Iranian crude exports fall by nese access to foundational AI chips and
around 500,000 barrels per day, this could chipmaking technology.
push oil prices to USD 100–110/bbl. A
broadening of the conflict across the re-
gion, involving other oil producers, could
push oil prices above USD 120/bbl.
20
Taiwan. While we expect mutual interest in Investment implications

cross-strait and US-Taiwan cooperation to On page 34, we detail some of the primary
continue, heightened US-China tensions ways investors can hedge portfolios in
surrounding Taiwan could have material con- 2024, including through capital preserva-
sequences on global supply chains, with section strategies, oil, gold, and hedge funds.
ond-round impacts on both global markets
and diplomatic relations.
Do US presidential elections impact markets?

While the US presidential elections are im- able impact on markets. We recommend
portant for domestic and foreign policy, our investors express their political preferences
research shows that they do not have a reli- at the polls and not with their portfolios.
Don’t vote with your portfolio Best performance

S&P 500 calendar-year total returns in election aer Democrat
years since 1928, in % victory
Best
performance
aer Republican
–14.8 –9.1 0 13.1 victory
Worst Average 33.7 37.9

performance aer performance in
Republican victory election year*
Worst
performance aer
Democrat victory*
*Excluding 2008, when the S&P 500 fell by 37% chiefly as a consequence of the global financial crisis.
21
Scenarios
Base case scenario: Upside scenario:
Soft-ish landing Liftoff
Probability: 60% Probability: 20%
S&P 500: 4,700 | US 10-year: 3.5% | EURUSD: 1.12 S&P 500: 5,100 | US 10-year: 5% | EURUSD: 1.18
We expect both equities and bonds to deliver We expect positive returns for equities and
positive returns in 2024. Slowing US eco- flat returns for bonds. Strong economic
nomic growth, falling inflation, and lower in- growth buoys corporate earnings growth,
terest rate expectations should mean lower investor sentiment, and ultimately equity
yields, supporting bonds and equity valua- prices. By contrast, resilient growth and per-
tions, while the absence of a severe US reces- sistently above-target inflation keep bond
sion should enable companies to continue to yields elevated or push them even higher,
grow earnings. leading to flat bond returns.
Downside scenario: Alternative downside scenario:

Hard landing Bond vigilante
Probability: 15% Probability: 5%
S&P 500: 3,500 | US 10-year: 2.75% | EURUSD: 1.00 S&P 500: 3,800 | US 10-year: 6% | EURUSD: 1.22
We expect equities to deliver negative re- We expect both equities and bonds to fare
turns and bonds positive returns. A sharp poorly. Bond yields continue to rise, poten-
slowdown in growth—possibly resulting tially due to fears about excess budget defi-
from the cumulative effect of interest rate cits, higher energy prices, or a drawn-out
hikes enacted so far—results in a moderate period of above-target inflation. Higher
or severe recession. Grim investor senti- bond yields also weigh on equities as
ment and sharply lower earnings expecta- higher interest rates pull down estimated
tions feed into equity price declines. Bonds fair valuations and as some investors reallo-
fare well as interest rate expectations plum- cate away from stocks and toward bonds.
met and investors seek safe havens.
22

Paolo Sbalzer | pexels

23

How should I
invest in 2024?
To navigate the year ahead, we believe investors should focus invest-
ments around five broad ideas.
Manage liquidity appealing to sell USD upside to generate

With interest rates likely to fall, we believe yield. In commodities, we expect Brent
investors should limit overall cash balances crude oil to trade in a USD 90–100/bbl
and take opportunities to optimize yields, range through 2024.
using fixed term deposits, bond ladders,
and structured solutions. Hedge market risks
Geopolitical uncertainty means investors
Buy quality need to prepare for volatility ahead. In addi-
We expect positive returns for both equities tion to diversification, investors can further
and bonds, but focus on quality. We expect help insulate portfolios against specific risks
quality bonds to deliver both yield and capi- through capital preservation strategies, using
tal appreciation. And we believe stocks alternatives, or with positions in oil and gold.
with a high return on capital, strong bal-
ance sheets, and reliable earnings are best Diversify with alternative credit
positioned to generate earnings despite We expect elevated price and spread volatil-
weaker economic growth. ity in fixed income amid high global debt
balances. This is a supportive backdrop for
Trade the range in currencies various credit strategies including credit ar-
and commodities bitrage and distressed debt.
We expect US dollar stability as we enter
2024, yet USD weakness may emerge as
the year progresses. We therefore think it is
24
Investing in 2024
Manage liquidity
We believe investors should limit overall cash balances and optimize yields in
the year ahead. War and geopolitical uncertainty may increase the perceived
safety of cash, but we expect interest rates to fall in 2024, reducing the
return of cash and increasing reinvestment risks. Investors should use a com-
bination of fixed term deposits, bond ladders, and structured solutions to
cover expected portfolio withdrawals over the next five years.
Fixed term deposits Bond ladders

Interest rates on cash are poised to fall in Bond ladders can help provide investors
2024, in our view, as global growth and in- with added certainty over future returns. A
flation moderate. With this in mind, we be- bond ladder involves buying a series of indi-
lieve investors should use fixed term depos- vidual short-duration bonds of varying ma-
its to lock in currently high yields on cash, turities, staggered to provide a steady
and cover potential expenses and liabilities stream of income, and aligned with the size
up to 12 months out. Investors concerned and timing of expected portfolio withdraw-
about issuer and counterparty risks can di- als over the next 12–36 months. We see
versify their deposits. Investing in fixed term current yields on short-duration bonds as
deposits of different maturities can also attractive, and do not expect current yields
help match liabilities and reduce interest to last if central banks cut rates. Holding
rate and reinvestment risks. quality bonds may also offer scope for gains
in downside economic scenarios.
25
Investing in 2024
Structured solutions with capital How to structure your liquidity

preservation features
For cash intended for use in 3–5 years’ time, < 1 year
Fixed term
deposits
liquidity and safety concerns need to be bal-
anced with the opportunity costs from po-
tential stock market rallies. Investors con- 1–3 years Bond
ladders
cerned about limiting losses but also
participating in equity gains can consider
Structured
structured solutions with capital preserva- 3–5 years
solutions
tion features. Lower bond prices and lower
equity market volatility in 2023 have im- Source: UBS, as of November 2023
proved the pricing of such strategies, which
should mainly be focused on covering lon-
ger-term liabilities, since costs may apply if
investors need to sell before maturity.
Changes in interest rates, implied volatility, and dividend levels can also influence the pric-
ing of structured solutions. Investors should be aware of the additional risks borne when
using structured solutions or other options-based strategies, including that the issuer fails
to meet its obligations or repay an investor’s principal at maturity.
26
Investing in 2024
Buy quality
We expect positive overall returns for both equities and bonds in the year
ahead. But within each asset class, we believe investors should focus on qual-
ity. In fixed income, quality bonds offer attractive yields and should deliver
capital appreciation if interest rate expectations decline, as we expect. In
equities, quality companies with strong balance sheets and high profitability,
including those in the technology sector, appear best positioned to generate
earnings in an environment of weaker growth.
The outlook for bonds Figure4
We expect government bond yields to fall The market is overly hawkish

in 2024, supporting positive returns for the Federal funds rate, market pricing based on forwards,
asset class. in %
7 Market-implied rate
not falling as fast as
We think weaker growth should contribute 6 fed funds rate
to lower interest rate expectations. Market 5
expectations that the Fed will not cut rates 4
below 4% within the next five years are 3
overly hawkish, in our view. And in an uncer- 2 FOMC

dots
tain world, we believe government bonds 1
could periodically attract safe-haven flows. 0

1997 2002 2007 2012 2017 2022 2027
Quality bonds. We think this is an oppor- Source: Bloomberg, UBS, as of November 2023
tune time to add to high-quality bonds—
specifically high grade (government) and
investment grade. Current yields should
27
Investing in 2024
provide attractive returns, with positive re- The outlook for equities
turns possible across a range of scenarios We expect a moderate rally in global equity
(see page 22), and particularly in downside indexes in 2024 as earnings grow, and as
economic scenarios. interest rates and bond yields fall. In our
base case, we see the S&P 500 rising to
We see value in the 1- to 10-year duration 4,700 by December next year.
segment, and particularly the 5-year dura-
tion point. We believe this middle part of We also see a 9% rise in earnings per share
the yield curve offers an appealing combi- for S&P 500 companies next year after a
nation of higher yields and greater stability flat outcome in 2023. We think that leaner
than the longer end, as well as some sensi- inventories, one-off base effects in health-
tivity to falling interest rate expectations. care, and earnings contributions from the
We are somewhat more cautious on lon- technology sector and other quality com-
ger-term bonds due to their greater sensi- panies should offset cyclical headwinds
tivity to technical factors, including cur-
rently high Treasury supply. Figure5
In the current environment, focus on

We do see select opportunities in riskier
high-quality stocks
credit segments, including high yield credit
Performance of high ROIC (top third of Russell 1000)
and emerging market bonds. However, relative to low ROIC (bottom third), sector neutral,
tighter lending standards, higher refinanc- indexed to 100
ing costs, and slower economic growth
275
suggest higher default risks. Liquidity risk
premiums may also rise as global money 225
supply shrinks. As a result, we see high yield
spreads as vulnerable to widening relative 175
to investment grade and high grade.

125
75
2000 2005 2010 2015 2020
ROIC = Return on invested capital

Note: Shaded areas denote periods when the yield on 10-year
Treasury minus the yield on 2-year Treasury is less than 0.75% or
the economy is in recession.
28
Investing in 2024
from slower US economic growth. We ex- ing margins, and relatively low debt on
pect 3% growth for European companies their balance sheets will be best positioned
and 16% from emerging markets. to continue generating profits in an envi-
ronment of weaker growth.
We also believe that lower interest rates
and bond yields should provide a tailwind A proxy for these stocks, the MSCI ACWI
for stocks, provided we avoid a meaningful Quality Index, has historically outperformed
contraction in economic growth. In 2023, the MSCI ACWI by 1 percentage point over
the equity risk premium deteriorated as six-month periods in which growth has
bond yields rose, making equities progres- been slowing but staying positive (as mea-
sively less appealing relative to bonds. We sured by the Atlanta Fed GDPNow sur-
expect that trend to reverse in 2024. vey)—the environment we expect in 2024.
Of course, uncertainty around the broader Also, quality stocks have historically out-
macroeconomic and geopolitical outlook performed in the late stages of the busi-
creates higher uncertainty around our earn- ness cycle, including in periods of eco-
ings estimates, and the MSCI All Country nomic contraction, which should offer
World Index (ACWI) is trading at 15.9 times portfolio protection if the economy slows
12-month forward price-to-earnings, more than we expect. The quality tilt also
roughly 10% above its 15-year average. aligns with our preference for US technol-
Hence, we maintain a neutral stance on eq- ogy companies, which should be among
uities overall, while we await opportunities the key beneficiaries of AI-related demand
to change our allocation to stocks. for both hardware and software.
Regionally, we like emerging market equi- Quality stocks typically have higher valua-
ties and view UK equities as least preferred. tions than the overall index, but we think
that quality is worth paying for in 2024. In-
Quality stocks. These are among our high- vestors can find quality stocks within US
est-conviction calls in the equity market. tech; stable quality-income and high-qual-
We believe that companies with strong re- ity cyclical stocks in Europe; and in select
turns on invested capital, resilient operat- names in Asia.
29
Investing in 2024
Focusing on sustainability in fixed income

and equities
Investors can invest in fixed income and equities while aligning

with sustainability objectives.
Multilateral development bank (MDB) bonds, which channel

capital into development projects with environmental and
social goals, are rated AAA and offer slightly higher yields than
benchmark government bonds.
Sustainable bonds—comprising green, social, sustainability, and

sustainability-linked bonds—offer comparable yields to other-
wise identical traditional bonds while delivering transparency
on the projects financed from their proceeds.
“ESG leaders” strategies within equities and bonds focus on

companies with top metrics across environmental, social, and
governance criteria. Some empirical research supports a link
between companies with better sustainability management and
financial performance, and ESG leaders’ portfolios correlate
strongly with “quality” factors, and typically enjoy valuation
premiums across both equities and bonds.
30
Investing in 2024
Trade the range

in currencies and
commodities
As we enter 2024, the US dollar should be stable around current levels. But
as the year progresses, USD weakness may emerge, which makes selling USD
upside for a yield pickup attractive. In commodities, investors can position for
potential carry returns while hedging against geopolitical or weather risks.
We like yield generation strategies, or those that enable investors to system-
atically buy currencies at cheaper levels.
The outlook for currencies Figure6
We expect the US dollar to stay stable in EURUSD remains overvalued

the first months of the year due to robust EURUSD and EURUSD purchasing power parity value
US economic growth and high US interest 1.6

rates relative to the rest of the world. How-
1.4
ever, strong US economic performance and
high relative rates are already priced in at 1.2
current valuations. At the same time, gains 1.0

by the euro, the British pound, and the
0.8
Swiss franc are likely to be limited amid
lackluster growth and data-dependent cen- 0.6
1983 1993 2003 2013 2023
tral banks. As a result, we favor yield pick-
up strategies within these currencies. EURUSD PPP
31
Investing in 2024
The Australian dollar is our preferred cur- Risks to our view include the US economy
rency as the Reserve Bank of Australia continuing to exceed expectations and de-
should be one of the last major central liver robust growth. On the flip side, eco-
banks to cut interest rates. Favorable fiscal nomic activity in the Eurozone or China
and external account positions add to an could come under further pressure, pre-
attractive currency mix. venting their currencies from reaping the
benefits of a dip in US growth. Geopolitical
We also like the Japanese yen given that risks also abound—any escalation could
the Bank of Japan is tightening monetary make the US dollar’s safe-haven character-
policy, and the authorities may step in to istic shine again, likely only eclipsed by the
limit further yen weakness. That said, yen Swiss franc.
gains will likely be impaired by the curren-
cy’s negative carry, requiring investors to fo- Navigating currencies in 2024. For investors
cus on exchange-rate momentum. whose base currency is the US dollar, we
think selling the dollar’s upside potential for
We expect the Chinese yuan to bottom out yield pickup or selling the dollar on rallies, is
against the US dollar in the early part of an attractive strategy. We think upside risk
2024. Nevertheless, we see limits to any for the USD is limited in the short run, and
CNY rebound considering China’s structural that strong US economic growth is already
challenges and ongoing geopolitical risks. priced in at current valuations.
We think this makes it hard for pro-growth
currencies in Asia to perform unless eco- For investors based in euro, the British
nomic growth outside the region surprises pound, the Swiss franc, or select other cur-
very positively. rencies, we recommend finding range-trad-
ing opportunities in the crosses (see table).
Currency crosses Buy at lower end of range Sell at upper end of range
EURUSD 1.0–1.05 1.10–1.12

USDCHF 0.85–0.87 0.92–0.94
EURCHF 0.94 1.0
GBPUSD 1.19–1.21 1.26–1.30
USDJPY 137–140 152–155
AUDUSD 0.63–0.64 0.70–0.72
32
Investing in 2024
Meanwhile, we like the AUD from a carry some protection against geopolitical and
perspective, and believe selling downside weather risks that threaten supply.
risks in the JPY, the Norwegian krone, and
the AUD are appealing strategies from a Trading the range. We like strategies that
spot risk and volatility perspective. take advantage of the trading ranges
within commodities, selling the upside in
The outlook for commodities some cases, and the downside in others.
With GDP growth likely staying subdued in
China, hovering around zero in Europe, and In energy, by restricting production, OPEC+
declining in the US, the potential for com- has created an artificial market deficit, al-
modity price gains is relatively limited. though much higher prices would likely re-
sult in both a supply response and demand
But total returns should be supported by destruction. We see Brent crude oil prices
yields on cash collateral of more than 5%, fluctuating in a USD 90–100/bbl range, but
and roll gains from downward sloping fu- with risks tilted to the upside given the po-
tures curves in energy and parts of agricul- tential for oil supply disruptions.
ture. These should add 1–2 percentage
points per annum to broad index returns We expect gold to rise further to a record
(based on the UBS CMCI index). USD 2,150/oz by end-2024 if potential US
rate cuts become a reality. However, in the
Overall, we expect broad commodity in- short term, opportunity costs attached to
dexes to deliver low-teens percentage re- holding gold remain elevated, so we favor
turns over the next 12 months. We think buying on dips.
this strategy provides an attractive risk-re-
ward trade-off to investors who continue to
hold their positions, while also providing
33
Investing in 2024
Hedge market
risks
Investing against a backdrop of war and geopolitical uncertainty can be chal-
lenging, and investors need to prepare for volatility ahead. We believe that
investing across asset classes and regions should be most investors’ first
defense against potential market turbulence. But investors can also further
help insulate portfolios against specific risks through defensive structured
investments, alternatives, or positions in oil and gold.
Defensive structured investments Figure7
We expect positive returns for equities in Higher yields and low volatility a
2024. But with geopolitical and economic boost for capital preservation
risks likely to be prominent, investors look- Past 5 years 12-month trailing VIX average vs. 10-year
ing to hedge against the risk of losses can US bond yield, based on quarterly data, and current
level
make use of structured investments with
5
capital preservation features. Such strate- Low volatility, high yield High volatility, high yield
now
gies are particularly attractive in times of 4
10-year yield
higher bond yields and average or below- 3

average implied equity market volatility.
2 High volatility, low yield
Another option to reduce direct exposure is
1
through yield generating strategies, a strat- Low volatility, low yield
egy which is attractive when volatility is 0

10 15 20 25 30 35 40
high—as in the fixed income markets at VIX
present. Source: Bloomberg, UBS, as of November 2023
34
Investing in 2024
Oil and energy stocks against higher longer-dated bond yields.

Investors worried about the potential market We would expect this position to perform
impact of further escalation in the Israel- well if investors demand more compensa-
Hamas or Russia-Ukraine wars can consider tion for holding long-dated Treasuries, or if
hedging portfolios through oil market invest- recession fears lead to lower short-term in-
ments or energy stocks. Investors with a high terest rate expectations.
risk tolerance can consider adding exposure
via longer-dated Brent contracts, which cur- Macro and multi-strategy
rently trade at a discount to spot prices, or hedge funds
selling the risk of Brent prices falling. Macro funds could also be an effective
hedge and diversifier in 2024. They take
Gold advantage of macroeconomic volatility, us-
We think gold can provide a potentially ef- ing their top-down approach to navigate
fective portfolio hedge against rising geopo- shifts in the economic landscape, central
litical tensions. Current interest rate and bank policies, and market conditions.
geopolitical uncertainty may lead to choppy
gold prices in the near term. But investors Meanwhile, multi-strategy funds, combin-
looking to add gold can consider buying ing various hedge fund approaches, are
the metal using options (buying below also a potentially attractive way to diversify
USD 1,900/oz). We think investors with ex- portfolios. These funds are typically highly
isting long gold positions should hold onto diversified, reallocate dynamically, and exer-
them in anticipation of a recovery over the cise advanced risk management strategies.
next 6–12 months. Investors should be aware of the risks inher-
ent in alternative investments. These in-
Hedge by positioning for clude liquidity risk, use of gearing, and lim-
a steeper US yield curve ited disclosure requirements.
Investors concerned about widening US fis-
cal deficits could consider a steepening
trade on the US government bond yield
curve, buying 5-year Treasury bonds and
selling 10-year ones (on a duration-adjusted
basis). This takes advantage of the relatively
flat yield curve to enact a “low cost hedge”
35
Investing in 2024
Diversify with
alternative credit
We expect high global debt balances to contribute to elevated price and
spread volatility, driving investors to seek ways to benefit from dispersion.
This is a supportive backdrop for various alternative credit strategies includ-
ing credit arbitrage and distressed debt.
Credit arbitrage ents opportunities for discerning managers

US credit markets have been in recovery to make single-name credit choices based
since the fourth quarter of 2022. But on fundamental analysis.
lower-rated credit segments have under-
performed, largely due to refinancing There are risks to consider when investing
fears. Widening dispersion between credi- in this strategy. Alongside illiquidity and
tors makes credit arbitrage strategies a po- lower transparency than public markets,
tentially attractive addition to portfolios. credit arbitrage portfolios are subject to
near-term losses arising from higher levels
In the current market, about a third of the of corporate distress, even if such distress
US ICE BofA high yield index are trading at may open up long-term opportunities. This
spreads below 300bps relative to the underlines the importance of managing
benchmark, 15% between 501bps and risk in stressed single-name credit and con-
800bps, and 9% above 800bps. This pres- sidering index portfolio hedges.
36
Investing in 2024
Distressed debt already seen some dislocation, with prop-

We also see good strategic opportunities erties in bankruptcy and tenant distress. In
in distressed and special situation funds. other sectors, distressed funds could find
Higher interest rates could put pressure on opportunities in overly indebted businesses
companies’ ability to refinance. This should that struggle to cover interest costs.
provide a consistent source of deal flow
for distressed and special situation funds.
The distressed opportunity is likely to be
focused in areas of the market that have
Figure8
Higher rates and the impending maturity wall put pressure

on firms to repay loans, creating opportunities in distressed debt
Maturity wall of convertible and high yield bonds, in USD bn, vs. portion of respective market maturing
Portion of market maturing (%)

500 100
Maturity hurdle (USD bn)
400 80
300 60
200 40
100 20
0 0
2023 2024 2025 2026 2027 2028 2029 2030
Global convertibles Global HY Convertibles cumulative HY cumulative
Source: BofA Securities, Bloomberg, UBS, as of November 2023
37

Kacper Peciak | Unsplash

38

The Decade Ahead

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 But precisely how deglobalization shapes
recent years begs the question of whether the world economy in the decade ahead
the “new world” post-pandemic has also depends less on whether it happens and
brought with it a new macroeconomic re- more on why it happens.
gime, in which the global economy shifts
from one characterized by muted demand Should deglobalization occur mainly for po-
and excess supply, to one of constrained litical reasons—for example, due to in-
supply and robust demand. creased trade restrictions or subsidies—it
would likely constrain the overall supply of
The answer to that question will be defined goods, reduce potential growth, or periodi-
by developments in what we call the “Five cally lift inflation.
Ds”: deglobalization, demographics, digita-
lization, decarbonization, and debt. However, if deglobalization occurs mainly
for economic reasons—a result of compa-
Deglobalization nies leveraging automation; focusing on in-
A new world will likely be one in which tegrated manufacturing; reassessing costs
economies are less integrated. We think in light of rising wages in emerging mar-
trade as a share of global GDP has likely al- kets; or building more resilient supply
ready peaked—with reduced trade acceler- chains—the consequences are likely to be
ated by the US, Europe, and China becom- different. In this scenario, the net result is
ing accustomed to exchanging sanctions, likely to be higher supply, lower inflationary
tariffs, and export controls. Tensions be- risks, and higher potential growth.
tween the US and China also risk splitting
the world into incompatible financial, trade,
and technological blocs.
39
Investing in the Decade Ahead
Demographics Digitalization
Demographics pose an increasing potential The rise of artificial intelligence could pres-
headwind in our new world. Half of the age an era of higher productivity. We see
world economy measured by official GDP potential for an incremental annual increase
now has a declining population. Popula- of between 0.3% and 2% in the US alone.
tions are shrinking in Japan, China, and
several European countries. The ratio of re- If the full potential of AI is realized, it could
tired to working-age people has risen glob- help alleviate demographic challenges—
ally from 11.8% to 14.8% in just the past supporting growth and driving disinflation
decade, up more sharply in high-income in certain goods and services, despite
countries from 23.2% to 29.1% over the shrinking working-age populations. Mean-
same time period. while, upfront investment in AI and related
industries like semiconductors could boost
These trends represent a supply constraint. demand in the near term.
Economic growth is a function of growth in
the labor force, capital investment, and pro- However, the impact of AI may not be as
ductivity, so all else equal, lower labor force profound if the technology mostly boosts
growth will mean lower potential economic supply in industries less affected by demo-
growth. A higher proportion of retirees rela- graphic challenges (e.g., chatbots support-
tive to workers will likely mean higher debt. ing professional services) and fails to boost
In service-heavy economies, in which the supply in areas facing greater pressures
potential for productivity growth is more (e.g., physical robots supporting healthcare).
limited, rising old-age dependency ratios
could also contribute to higher inflation. Either way, for investors, we think the rise
of AI should support overall corporate earn-
Whether the world economy can escape ings growth and opportunities in compa-
the negative supply-side effects of an aging nies enabling, offering, or benefiting from
population could depend largely on devel- AI technologies.
opments in our third D: digitalization.
40
Decarbonization Debt
The drive toward clean energy and zero car- The future for the fifth D—debt—may de-
bon emissions has been reinforced by fears pend on how the other four contribute to dif-
over energy security and extreme weather ferent growth, inflation, and interest rate
events. In the years ahead, we expect pub- outcomes. Global total debt has risen as a
lic and private capital to continue to sup- share of GDP since the global financial crisis in
port the energy transition. 2008, as the world has grappled with weak
demand. Fortunately, abundant supply and
In the short to medium term, we believe low interest rates have meant that interest
the energy transition could disrupt supply, payments in proportion to government reve-
as energy storage and grid connectivity ob- nue have so far stayed close to all-time lows.
stacles constrain the reliability of renewable
energy even as costs and operational risks Looking ahead, demographic challenges
for fossil fuels rise. At the same time, in- and investment needs related to decarbon-
vestments in the sector could help keep ization, digitalization, and deglobalization
global demand robust. look likely to mean rising government debt
as a share of GDP. If rates and yields do not
In the longer term, we see the drive toward fall in the way we expect in the coming
decarbonization as a net positive for global years, higher interest payments could start
supply. Enabling a more abundant supply of to pose a challenge for governments in the
energy at lower cost should contribute to second half of this decade.
higher potential growth, lower inflation,
and more robust supply chains. For inves- Debt will need to remain affordable, not
tors, solution providers as well as early least because many voters prefer low bor-
adopters should stand to benefit most. rowing costs. The preferred path to achieve
this is through robust economic growth,
which could materialize with the wide-
spread use of AI, abundant green energy,
and localized supply chains. Failing these,
then some combination of financial repres-
sion, taxes, surprise inflation, or default
may be needed. Here, the answer may be
less about markets and economics and
more about politics, with different countries
likely to choose different paths.
41
Scenarios
As we consider the decade ahead, we see four potential scenarios for the new
macroeconomic normal in our new world.
Roaring ‘20s Brave new world

Moderate inflation and high growth Low inflation and high growth
Drivers could include high rates of invest- Potential drivers of this scenario include a
ment linked to digitalization (AI), decarbon- prominent role for AI or a swing back to-
ization, and defense. In this scenario, we ward globalization. We think this scenario
would expect strong earnings growth and would be favorable for both equities and
good performance from equities, but more bonds. We would expect good earnings
muted initial performance from bonds as growth to support equities, and lower in-
investors price interest rates staying higher terest rate expectations to support bonds.
for longer.
Secular stagnation redux Stagflation

Low inflation and low growth High inflation and low growth
Potential drivers include aging populations Drivers of this trend could include deglobal-
or the promise of AI and renewable energy ization, geopolitical tensions, and climate
not meeting expectations. This scenario change. In this scenario, we would expect
would likely be initially positive for bonds as both bonds and equities to perform poorly
financial repression is used to manage rising (at least in real terms) as higher rate expec-
debt burdens. Equity multiples could be tations and challenges to real earnings
supported by central bank stimulus, but growth weigh on performance. Nominal re-
companies could also struggle to deliver turns for equities could still be positive.
earnings growth.
42
Asset class expectations

Over the coming decade, we believe that cash will underperform other major as-
set classes, particularly in scenarios in which central banks return to financial re-
pression. We see the highest returns in equities. Prospective fixed income re-
turns should continue to improve. Good returns in underlying equity and bond
markets should be supportive for the returns of alternative assets.
Cash while we expect yields to drop, we still ex-

Cash rates are currently attractive, but we pect them to stay higher than the pre-pan-
believe that interest rates are likely to fall in demic era, as increased investment needs
the year ahead. We also expect that cash, related to deglobalization, digitalization,
over the long term, will underperform other and decarbonization contribute to greater
major asset classes like stocks and bonds, bond supply and higher estimates for the
especially in scenarios in which central real neutral rate. We think this means an
banks use financial repression to manage environment of consistent, attractive total
rising debt burdens. We recommend that returns for government bonds.
investors hold no more than two to five
years of expected net portfolio withdrawals Credit
in a liquidity strategy. Credit spreads are currently relatively tight
compared to historical norms. While we ex-
Government bonds pect spreads to widen in the near term as
High yields bode well for government bond growth slows, we still believe credit expo-
returns over the long term, and we also ex- sure is valuable in the context of a long-
pect good returns in the near term as infla- term diversified portfolio to benefit from
tion and growth fall from today’s levels. But both carry and diversification. Refinancing
43
risks, slower growth, and less certainty to come. We also see attractive opportuni-
about central bank intervention may con- ties in entering private markets today,
tribute to higher fixed income volatility in where secondaries are trading at a compel-
the years to come, favoring an active ap- ling 16% discount to net asset value (NAV),
proach to the asset class. while new private loans are yielding 12.5%.
Investors should be aware of the added
Equities risks borne in alternatives, including illiquid-
We expect equities to deliver the highest re- ity, the use of gearing, and less transpar-
turn among major asset classes in the de- ency than in public market investments.
cade ahead. Aggregate earnings growth
should be well supported by robust growth Currencies
in companies driving technological, energy, We expect the US dollar to depreciate over
and healthcare disruption. That said, like- the longer term due to its elevated valua-
for-like, equity valuations are likely to be tion and concerns over deficit financing.
lower than in the past decade, given higher However, this view is largely compensated
interest rates than pre-pandemic norms. for by USD interest rates, so our expected
Global diversification will be important to returns for most asset classes are similar in
navigate a deglobalizing world. Emerging hedged or unhedged terms. We also expect
market stocks, for example, are trading at the JPY to catch up in the years to come
sizable discounts to historical levels, and we given its significant undervaluation.
expect them to deliver the highest rates of
return over the next decade. Commodities
We think prices will stay high over the de-
Alternatives cade ahead amid higher climate, supply
We estimate that allocating a 20% expo- chain, and defense spending. Given the cy-
sure to alternatives in a balanced portfolio clicality of the asset class, we favor invest-
could increase expected returns by about ing in commodities via active approaches,
50bps a year over the long term, for an or via equity sectors or in countries and cur-
equivalent level of portfolio volatility. An rencies with high commodity exposure.
environment of higher rates and attractive
returns for traditional assets bodes well for
hedge funds, which we think will remain an
important portfolio diversifier in the years
44
What will generative AI

mean for markets and
economies?
Generative artificial intelligence isn’t a new concept—the broad idea has been
around since the 1960s, and the transformer architecture that makes it more
effective was detailed in 2017. But the launch of ChatGPT has shown its po-
tential impact when combined with a platform with strong consumer adop-
tion. Currently, we see AI-related opportunities across a range of software, in-
ternet, and semiconductor stocks.
History shows that the advent of new Figure9
technologies can create value across a Contribution to S&P 500 performance

range of sectors. Magnificent 7 vs. remaining 493 S&P 500 stocks,
year-to-date, in percentage points
We use a four-part framework to help
identify common ways that technological 2.6%
Other
493 stocks
developments create value in adjacent sec-
tors through time.
15.1%
Magnificent 7
12.5%
S&P 500
Source: FactSet, UBS, as of 3 November 2023
45
Generative AI is the latest technology creating value across sectors

The innovation value chain: Breakthrough technology is powered by infrastructure and inputs,
creating new hardware running on platforms of operators and enablers, benefiting the eco-
nomy at large
Technology Infrastructure / Hardware Operators Application

inputs manufacturers and enablers beneficiaries
Steam engine Steel, coal Trains, ships Railroad and ship Trade
operators
Telephone Telecom cables, Telephones Network Services, trade

electricity operators
Internal Steel, oil, Car Service, insurance, Retail, leisure,
combustion auto parts manufacturers dealerships commuters
engine
Television Towers, satellites Television sets TV networks Advertising,
subscription business
models
Computer Semi- Mainframes IBM Professional services,
conductors manufacturing,
aerospace
Internet Routers, PCs Windows, Search, e-commerce,
data centers Internet Explorer cloud
Mobile Towers, Smartphones iOS, Android Social media,

internet semiconductors e-commerce,
gig economy
Generative AI Cloud Graphics Large language Text generation, pro-

processing units models gramming, image/
video generation
What does history tell us about technology innovation?

Infrastructure and input providers. their products can become commoditized.
Demand for necessary infrastructure and in- Infrastructure and input providers therefore
puts understandably often booms in the im- may eventually need to learn to run at a
mediate aftermath of innovation—think high scale and with lower profit margins.
steel and the railway, oil and the automobile,
semiconductors and the smartphone. But Hardware manufacturers. Innovative tech-
history shows that while providers of key in- nologies can often drive the adoption of
puts can earn high profits initially, over time new consumer hardware (e.g., cars, TVs),
46
and hardware manufacturers can therefore Where does AI stand today?

benefit from a surge in demand. At the early We can see this historical framework at play
stages of a technology boom, hardware in the early stages of the AI revolution:
manufacturers may benefit from the unique-
ness, quality, and novelty of their hardware. Infrastructure and input providers (cloud).
But sustaining leadership is often harder. Cloud computing is a crucial input for gen-
Hardware can also become commoditized erative AI because it provides the comput-
over time, and successful hardware compa- ing power needed to both train and make
nies often must learn to differentiate their generative AI applications work. Much like
products, potentially by integrating hard- historical “inputs” into other key technolo-
ware with a leading operating system. gies, cloud computing is in some sense
commoditized––it is a standardized service
Operators and enablers. The largest and with a low unit cost. That means there are
most enduring value creation derived from significant economies of scale, and the larg-
new technologies has historically tended to est cloud platforms are already run by the
accrue to their operators and enablers. Rail- largest technology companies. Cloud pro-
road companies, radio and TV networks, viders are also able to “lock in” customers
software operating system developers, and through bundled services.
digital platform companies are all examples
of such enablers. In many cases, they have Hardware manufacturers (GPU manufactur-
become the largest companies in the world ers). Graphics processing units (GPUs) are
at some point in time. chips that are crucial to the training of neural
networks, a cornerstone of AI, and are there-
Application beneficiaries. Innovative tech- fore seeing a strong surge and significant
nologies often create ecosystems of benefi- share price appreciation for the leading
ciaries that may not be directly involved in manufacturers. In the short term, we expect
the development of a technology, but may this demand surge to continue. In the me-
be well positioned to use them to build new dium term, we may see a period of “diges-
businesses or improve the profitability of ex- tion” in which buyers identify and refocus on
isting ones. Companies that increased cross- only the most promising use cases. Over the
country trade following the advent of the longer term, it remains to be seen whether
steam engine, retailers that boomed due to chipmakers can continue to develop, evolve,
mass car adoption, or businesses that en- and innovate their products to maintain pric-
gage in e-commerce and social media as a ing power, or if GPUs will become commod-
result of the internet are all examples.
47
itized, forcing manufacturers to run at a Investment implications

higher scale and with lower margins. An unusual feature of generative AI is that,
right from the onset of the new technology,
Operators and enablers (large language many of the same companies are already
models). Large language models (LLMs) can operating in multiple stages of the value
be thought of as among the key “enablers” chain––from cloud, to the ownership of
of the AI ecosystem. Developing an effective LLMs, to the development of end-user ap-
large language model requires significant plications.
scale in data, computing power, and talent,
and while models may be better suited to a With that in mind, it is perhaps understand-
specific application (e.g., generating text, able why the Magnificent 7 in the S&P 500,
code, or images), they are generally not spe- mostly AI beneficiaries, have seen their
cific to an individual domain (e.g., finance, market capitalization grow by 67% (or
law, or marketing). Ultimately, there may only USD 4.6 trillion) so far in 2023. With the
be a few LLMs on which most generative AI significant resources needed to build and
applications are built. So far, the most notable benefit from complex AI models, we expect
have mostly been built by, or in a joint venture the large players to grow larger still.
with, the largest technology companies.
We believe that investors looking for expo-
Application beneficiaries (text generation, sure to AI should seek broad exposure across
programming, image/video generation). the value chain, including in cloud, semicon-
ChatGPT has been a clear example of how ductor, software, and internet names. Re-
generative AI can exhibit human-like text- lated semiconductor companies should con-
generation capabilities. It can also be used tinue to see robust demand in the near term;
to generate computer code, images, or key generative AI product launches across
video. We see significant opportunities over many of the Magnificent 7 are likely to keep
the next few quarters in the integration of the momentum high; and internet stocks
AI “copilots” in office productivity software, should benefit as AI becomes more inte-
in the rising demand for AI analytics, and in grated in consumer applications like gam-
AI integration in image, video, and other ing, entertainment, and advertising.
enterprise applications.
48
While the long-term growth potential is Over the longer term, AI will likely be disin-
large, investors should be prepared for po- flationary for prices in some sectors, but the
tential short-term volatility or drawdowns. extent of the economy-wide impact will de-
As with other technology booms, an initial pend heavily on the magnitude, location,
surge in demand can often be followed by and timing of AI’s use. It is already becom-
a digestion period for consumers and busi- ing clearer how AI text, image, and video
nesses. For long-term investors, such peri- generation could put downward pressure
ods could present attractive entry points to on pricing for sectors including customer
increase exposure. services, computer programming, legal, and
entertainment.
Economic implications
We think AI should meaningfully improve Finally, periods of economic upheaval tend
efficiencies and worker productivity, but the to create social tensions as those who see
implications for economic growth are less their income and status decline seek some
clear. Depending on how AI is ultimately one or something to blame. These tensions
applied, it may result in unchanged output can lead to populist and prejudice politics.
but increased leisure time. AI could also further escalate geopolitical
tensions as countries enter an AI “arms
Some jobs will become obsolete because of race” as a defense against the potential ap-
AI—few offices today have “typing pools,” plications of AI by their rivals. This trend is
for example—but we should not necessarily already evident in the recent restrictions on
expect a surge in unemployment. AI is likely AI technology introduced by the US, and
to create at least some new jobs that were other retaliatory measures by China.
not previously thought of. Historically,
roughly 10% of the labor roles that existed at
the end of any given decade did not exist at
its start. For example, employment in the en-
tertainment industry has increased over the
past decade as social media and streaming
increased consumption of entertainment
and reduced barriers to entry.
49

Antoine Bussy | Unsplash

50
Investing in the future
Pick leaders from

disruption
We expect some of the highest returns in equity markets over the decade
ahead to come from those companies that can harness new technologies to
grow markets, dislodge incumbents, or slash costs. Successfully identifying
these “leaders from disruption” is critical to boosting long-term portfolio
potential. We expect the decade ahead to see a wave of disruption rippling
across industries from technology to energy to healthcare.
Technology disruption
The arrival of mainstream AI services accessi- 13 June 2023
ble to consumers has driven significant in-
vestment into the world’s largest technol- Nvidia becomes the
ogy leaders, crowning the first trillion-dollar
AI company in the process. The Magnificent
first AI company with a
7, mostly AI beneficiaries, have seen their market capitalization of
market capitalization grow 67% so far in
USD 1 trillion
2023. With access to all the computing, fi-
nancial, human, and data resources they
need to grow and exploit the potential of
generative AI, the largest players could
grow even larger over the coming decade,
in our view.
51
But this is not a story limited to mega-cap Recent company product and earnings an-
tech. We think technological disruption will nouncements in the software sector have
be an enduring theme that spawns new provided a peek into AI’s monetization po-
opportunities and leaders across sectors in tential. For example, new copilots are being
the decade to come. rolled out rapidly. These are AI companion
tools integrated within office workflow
As discussed on page 45, from an invest- software to boost employee productivity,
ment perspective, the beneficiaries of AI performing tasks that range from finding
can be broken down into four areas: infra- information to creating content. The ability
structure and input providers (cloud), hard- to charge additional monthly fees for copi-
ware (GPU manufacturers), operators and lot add-ons gives subscription-based soft-
enablers (large language models), and ap- ware companies an expanded scope for AI
plication beneficiaries (text generation, pro- monetization.
gramming, image/video generation).
We therefore see AI-related opportunities

across a range of software, internet, and
semiconductor stocks. Based on Bloomberg
Intelligence data, we now expect global AI
demand to grow from USD 28 billion in
2022 to USD 300 billion in 2027—a 61%
compound annual growth rate. In that
time, we think the infrastructure segment
will grow by 38%, and the applications and
models segment by 139%.
52
Energy disruption Meanwhile, decarbonizing the heating and

Concerns about climate change, national cooling systems of buildings and factories
security, and advancing technology are driv- will require strong emphasis on energy effi-
ing global decarbonization. Creating an ciency investment. When the limits of hard-
economy free of carbon emissions and ware are reached, software can often be used
transitioning to clean fuels is a complex un- to enhance energy efficiency. This opens up
dertaking. It will require investment in opportunities for companies that gather dig-
power generation, energy infrastructure, ital data and provide enabling technologies.
transport, industry, buildings, and heating
and cooling systems, with the adoption of Beyond public markets, investors can tap
green technologies to achieve net-zero tar- into energy disruption opportunities in pri-
gets. We think investors will gain most vate markets, including in renewable infra-
through exposure to a number of these structure development, energy networks,
themes given the different stages of devel- storage, carbon capture, energy efficiency,
opment across countries and sectors. and circular economy solutions.
We expect global solar capacity to triple in

Figure10
the coming years from the current 1,000
GW, increasing the share of renewables in The transition to renewables is under
the global power mix. This share has al- way
ready risen from 20% to 30% over the past Primary energy consumption by fuel source, share of
total, in %
decade. Investors can tap solar opportuni-
ties through diversified exposure to green- 100
tech, long-term exposure to the energy effi- 80

ciency value chain, or more concentrated
60
exposure to smart energy solutions.
20
We expect electrified vehicles (including 0

battery electric and hybrid) to make up 1800 1850 1900 1950 2000
around 30% of global auto sales by 2025 Coal Oil Gas

Hydro Nuclear Renewables
and more than 60% by 2030, driven by in-
cremental technological developments. The Source: Energy Institute Statistical Review of World Energy
2023, UBS, as of November 2023
electric vehicle value chain is integral to
greentech investment themes, especially in
Asia and Europe.
53
Healthcare disruption sonalize medicines, although it is too early

The healthcare sector will be a key source of to see any tangible changes in drug discov-
disruptive innovation over the next decade. ery and approval rates.
Aging populations will increase the demand
for healthcare services and treatments, When investing in healthcare disruption,
while tighter government budgets will ne- we think it is important to keep a diversi-
cessitate new approaches to care delivery. fied exposure to various areas of innova-
tion. Most of the disruptors are small com-
We see biological innovation and health- panies, and tighter financial conditions can
care technology application as prime areas. disproportionately affect short-term stock
Diversified exposure makes particular sense performance of those companies. Combin-
given that many companies in this field are ing investments in the “disruptors” with in-
small- or mid-cap. vestments in the “adopters”––more estab-
lished companies that are using the new
In addition to obesity remedies, which technologies––can be a lower-risk way of
grabbed investors’ attention in 2023, we see capturing the benefits of innovation.
opportunities in cancer treatment, rare dis-
eases, immunology, and neurology. Compa- We also see opportunity for investors to
nies have developed various new treatments diversify across major subsectors (bio-
that are now either reaching the market or pharma, medtech and tools, and services),
close to approval, including antibody-drug and by geography, potentially enabling them
conjugates, bispecific and multi-specific anti- to capture the growth in emerging market
bodies, and even cell therapy approaches for healthcare. Investors able to lock up capital
immunological conditions. for longer can also diversify beyond listed
companies, given the significant role of pri-
Meanwhile, increased connectivity and vate markets in funding early-stage research.
computational power are also leading to Allocations to health-related investments
significant development. Trends include across private and public markets could also
miniaturization, robotics, greater ease of in- benefit sustainability-focused portfolios.
teraction with patients, and improved ac-
cess. The biopharma industry is also explor-
ing AI-driven approaches to increase the
output of the drug discovery process, de-
velop new diagnostic approaches, or per-
54
Capture growth
with private markets
A new world will see significant investment in healthcare, digitalization, and
energy. But high government debt levels mean public funding for innova-
tion is likely to be constrained. Private market managers, with their ability to
provide equity or debt capital to companies at different lifecycle stages,
have a key role to play. The asset class offers attractive return potential and
direct access to the real economy, in exchange for lower liquidity.
Private markets provide access Private equity

Gaining exposure to fast-growing and inno- Value and middle-market buyout. In the
vative businesses through listed equities is middle market, entry multiples for acquisi-
becoming harder due to the shrinking sup- tions have declined to 10.3 times enterprise
ply of new listed firms. More companies are value relative to EBITDA year-to-date (as of
choosing to stay private, delay listings, or 2Q23), down from 12.8 times on a trailing-
avoid them altogether, a trend we do not ex- 12-month basis and below the average
pect to reverse in the decade ahead. Similar since 2008 (11.4 times). Add-on strategies,
dynamics apply in the debt markets, where meanwhile, remain a powerful tool in off-
traditional lenders’ market share is declining setting growth and interest rate pressures
in favor of private debt, particularly in fund- given their potential for multiple arbitrage,
ing small and midsize businesses. cost-revenue synergies, and growth acceler-
ation. We also expect carveout and divesti-
55
Figure11 Thematic growth. For investors seeking to

Secondaries are trading at unusually capture long-term secular trends in areas
deep discounts such as software, health, education, and
Pricing as % of NAV across private strategies climate, thematic growth private equity
funds present an opportunity as improved
100
pricing offers an attractive entry point.
90
Private credit
80
Direct lending strategies are likely to be a
good source of income in the coming de-
70
cade. Debt-to-cash ratios have deteriorated,
60 and defaults could rise, especially given the
2015 2017 2019 2021 1H23 lagged effect of higher interest rates on the
Buyout All Real estate Venture economy. But while defaults could lead to
potential credit losses on existing loans, pri-
Source: Jefferies Global Secondary Market Review 1H23, UBS,
as of November 2023 vate lenders can dictate better terms on
new loans and negotiate stronger lender
protections which may include stricter cove-
ture volumes to pick up further as the eco- nants, lower leverage levels, and higher eq-
nomic environment slows and companies uity contributions. At current levels, private
spin out noncore or underperforming assets loans yield close to 12.5% on an unlevered
at potentially compelling acquisition prices. basis and offer an attractive carry pickup
over high yield and leveraged loans that
Secondaries. With many investors still seek- should compensate for potential credit
ing to generate liquidity, secondary market losses. We recommend focusing on experi-
managers that specialize in acquiring stakes enced managers who are prudent at under-
in existing funds or portfolio companies that writing. Managers with turnaround capabil-
are, or are close to, generating cash flows ities or experience in taking equity
remain attractive, in our view. Discounts are ownership may also have an edge in this
still above historical norms (16% to NAV as environment. Investors should consider the
of June), bid-ask spreads have narrowed, risks inherent to private markets before in-
and transactional activity is picking up. vesting, including illiquidity, long lockup pe-
riods, leverage, and overconcentration.
56
Real assets istics—high barriers to entry, demand inelas-

We are selective on the real estate market, ticity, and consistent cash flows linked to in-
maintaining a focus on quality and resil- flation—that can be a strategic source of
ience. Fundamentals in the industrial, logis capital appreciation and income in multi-as-
tics, and multifamily sectors are sound, in set portfolios.
our view, supported by favorable trends
such as e-commerce and demographics.
While uncertainty is high, the current chal-
lenges in the US office market will provide
interesting investment opportunities in the
decade ahead. Should some office proper-
ties further correct in price, we see conver-
sion and refitting as a potential opportunity.
In infrastructure, developing new assets and

modernizing existing ones is key to several
structural trends, including digitalization,
decarbonization, and deglobalization. Gov-
ernments around the world are trying to
spur capacity expansion (notably in renew-
ables) while enhancing current and future
project economics and competitiveness.
Apart from being a thematic opportunity,
infrastructure assets have unique character-
57
Getting in balance in
the year and decade
ahead
A new world will mean complexity and volatility, but also opportunity to grow
wealth. To navigate this new world effectively, investors can build a plan using
the Liquidity. Longevity. Legacy.* framework, get in balance through a glob-
ally diversified multi-asset portfolio, and stay disciplined yet agile by comple-
menting their long-term portfolio with tactical trade ideas.
Liquidity. Longevity. Legacy. portion to two to five years of expected

The Liquidity. Longevity. Legacy. or 3L ap- portfolio withdrawals and taking action now
proach is designed to help investors explore to optimize yields using certificates of de-
and pursue their wealth goals over different posit, bond ladders, or structured solutions.
time frames, and involves segmenting
wealth into three strategies: Longevity.
This strategy is about investing in assets
Liquidity. that can provide income over the course of
This strategy is to ensure investors have an investor’s lifetime. Amid heightened un-
enough liquid assets to meet their short- certainty in our new world, we believe this
term spending needs and is typically in- strategy is best invested in a well-diversified
vested in cash or cash-like securities. With global portfolio, balancing return require-
interest rates likely to fall in the year and ments with risk management, and comple-
years ahead, we recommend limiting this mented with many of the tactical ideas dis-
cussed in this Year Ahead.
* Time frames may vary. Strategies are subject to individual client goals, objectives and suitability. This
approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved.
58
Legacy. Mapping these sums into the Liquidity. Lon-

This strategy is about investing for needs gevity. Legacy. investment strategies, in con-
that go beyond an investor’s own lifetime sultation with an advisor, can help investors
and potentially maximizing the value of as- clarify why they are investing and therefore
sets for inheritance or philanthropy. Many boost their chances of achieving their goals.
of the ideas discussed in the Decade Ahead The Liquidity strategy can offer investors
may be suitable for this strategy, including peace of mind during periods of market vol-
leaders from disruption and private mar- atility, and a disciplined process of drawing
kets. Impact investing, sustainable invest- on, and then refilling the strategy during
ing, and philanthropy can also be appropri- bear markets can help generate meaningful
ate for Legacy strategies. outperformance over time.
Investors can get started with the 3L ap-

proach by first considering how much they
need to draw from their portfolios to meet
their spending needs over the next two to
five years; their spending plans for the next
five years and beyond; and how much they
intend to leave behind.
The Liquidity. Longevity. Legacy. approach
The next 5 years– Beyond your

3–5 years lifetime lifetime
Liquidity Longevity Legacy

To help provide For longer-term For needs that
cash flow for needs go beyond
short-term your own
expenses
Source: UBS
Strategies are subject to individual client goals, objectives and suitability.
59
Get in balance Figure 12
We believe that holding a core position in a Positive returns expected across asset
balanced portfolio is the most effective way classes
for investors to both protect and grow December 2024 total return expectations for select
wealth over time. The concept of a bal- asset classes
anced portfolio is rooted in the principle of 14.1%
diversification, spreading investments across 10.9%
a variety of assets to earn returns and man-
age risks.
4.5%
Diversification is often thought of as being

about risk reduction, and it is: Spreading in-
S&P 500 10-year USD cash
vestments broadly can allow investors to US Treasuries
earn equivalent returns with lower risk than Source: UBS, as of November 2023
they would be able to take on in individual
investments.
standing one’s tolerance for volatility and
But it is important to remember that diver- risk is a way to get started. Balanced portfo-
sification is at least as much about not lios can be built to cater for a range of risk
missing the right stocks as it is about avoid- tolerances and return objectives, and we
ing overexposure to the wrong ones. For also think investors with sustainability-re-
example, we know that picking future per- lated objectives can earn comparable risk-
formance is hard: A study by Arizona State adjusted financial returns to traditional port-
University professor Hendrik Bessembinder folios with a sustainable balanced portfolio.
showed that just 0.3% of firms accounted
for half of US stock market wealth creation There is never a bad time to invest in a bal-
between 1926 and 2019. Diversification is anced portfolio, but given our positive out-
the only way investors can make sure they look for broad equity and bond markets
do not miss those very few outperform- and alternatives over the next year, as well
ers—particularly important in an era of as the potential for equities and bonds to
change. effectively diversify each other in our key
risk scenarios, we believe now is a good
Building a clear financial plan, thinking time for investors to get in balance.
about required rates of return, and under-
60

Mitchell Luo | pexels

61

2023 in review
Growth cline from 3.9% in 2022 to 3% in 2023. They
We expected economic growth to deceler- are at 4.6% at the time of writing.
ate in 2023. It did, though not as much as
we expected. Developed economies are on Stocks
track to grow by 1.7% in 2023 versus our We had a neutral stance on equities as we
initial estimate of 0.4% (and 2.4% in entered 2023. An unexpected AI-fueled
2022), and emerging economies to grow rally among a handful of stocks supported
by 4.3% versus our estimate of 3.5% (and broad equity indexes during the year. In the
4.1% in 2022). 12 months through this time of writing, the
S&P 500 is up 10.5%, Stoxx 600 3.3%, and
Inflation MSCI Emerging Markets 1.8%.
We thought that 2023 would see inflation
fall, and it did, albeit slightly less than we Currencies
expected. US consumer price inflation looks The US dollar is approaching the end of
set to end the year at 3.7%, versus our orig- 2023 marginally weaker than it started
inal expectation of 3.6%. against the euro, the pound, and the Swiss
franc, directionally in line with our forecasts
Rates for the full year, but to a smaller degree
We expected central banks to be in a posi- than envisioned. We did not expect the
tion to cut interest rates by the end of prolonged weakness of the yen, a result of
2023. While they are at, or close to, the the Bank of Japan’s continued loose mone-
end of rate hikes, tighter labor markets tary policy.
have precluded looser policy for now. We
now expect the first rate cuts to start in late Commodities
spring or early summer 2024. Gold overshot our expectations as investors
sought hedges against geopolitical risks de-
Bonds spite high interest rates. By contrast, oil
Surprisingly resilient economic growth and prices fell short of our initial expectations,
labor markets allowed bond yields to con- though the efforts by OPEC+ to limit supply
tinue to rise, contrary to our expectations. We allowed prices to almost test the USD 100/
thought 10-year US Treasury yields would de- bbl mark in the third quarter.
62
Forecasts
Asset class forecasts

Currencies
Spot June 24 Dec 24 PPP
EURUSD 1.07 1.10 1.12 1.29

GBPUSD 1.23 1.25 1.27 1.59
USDCHF 0.90 0.88 0.87 0.78
USDCAD 1.38 1.34 1.32 1.21
AUDUSD 0.64 0.69 0.72 0.69
EURCHF 0.96 0.97 0.97 1.00
NZDUSD 0.59 0.61 0.62 0.61
USDJPY 152 143 140 84
USDCNY 7.29 7.20 7.00 4.45
Source: UBS, as of 13 November 2023
Commodities
Spot June 24 Dec 24
Brent crude oil (USD/bbl) 83 95 95

WTI crude oil (USD/bbl) 78 91 91
Gold (USD/oz) 1,950 1,950 2,150
Rates and bonds

2-year yields (%) 10-year yields (%)
Spot June 24 Dec 24 Spot June 24 Dec 24
USD 5.03 3.75 3.25 4.64 3.75 3.50

EUR 3.08 2.50 2.00 2.71 2.25 2.25
GBP 4.64 4.00 3.50 4.31 3.75 3.50
CHF 1.31 0.75 0.70 1.09 0.90 0.90
JPY 0.10 0.20 0.25 0.87 1.00 0.80
Source: Bloomberg, UBS, as of 13 November 2023
63
Forecasts
Economic forecasts
GDP growth (%) Inflation (average, %)
2023E 2024E 2025E 2026E 2023E 2024E 2025E 2026E
Americas
US 2.4 1.1 1.7 1.8 4.2 2.7 2.0 2.3
Canada 1.1 0.2 1.3 2.1 3.9 2.5 2.1 2.0
Europe
Eurozone 0.5 0.6 1.2 1.1 5.5 2.4 2.1 2.0
UK 0.6 0.6 1.5 1.3 7.4 2.6 2.1 2.0
Switzerland 0.7 1.2 1.5 1.6 2.2 1.8 1.7 1.4
Asia
China 5.2 4.4 4.6 4.2 0.4 1.2 1.6 1.8
Japan 1.9 0.7 1.0 0.8 3.3 2.3 1.5 1.6
India 6.3 6.2 6.2 6.5 5.5 4.8 4.5 4.5
Australia 1.9 1.6 2.2 2.1 5.7 3.6 3.0 2.9
Developed markets 1.7 1.1 1.6 1.6 4.6 2.5 2.0 2.0
Emerging markets 4.3 3.9 4.3 4.2 7.6 8.7 5.1 4.1
World* 3.1 2.6 3.1 3.0 6.3 6.0 3.8 3.2
E= Estimate
* Excludes Venezuela for inflation
64
A new world
Impressum
Year Ahead 2024 – UBS House View Design
This report has been prepared by UBS AG, CIO Content Design
UBS AG London Branch, UBS Switzerland UBS Switzerland AG
AG, UBS Financial Services Inc. (UBS FS),
UBS AG Singapore Branch, UBS AG Hong Cover photo
Kong Branch, and UBS SuMi TRUST Wealth Photo by lisa therese on Unsplash
Management Co., Ltd.. Please see
important disclaimers at the end of the Languages
document. English, German, French, Italian, Spanish,
Portuguese, Chinese (Simplified, Tradi-
This report reflects the insights and per- tional), Japanese
spective from the entire CIO team across
the globe and demonstrates the intellectual Contact
leadership of UBS. ubs.com/cio
Global Chief Investment Officer SAP-Nr. 82251E-2301

Mark Haefele
Editor in Chief
Kiran Ganesh
Supervisory analyst
Abe De Ramos
Project manager
Sagar Khandelwal
Editorial deadline
15 November 2023
Publishing date
16 November 2023
65
Disclaimer
Cautionary statement regarding forward-looking statements

This report contains statements that constitute “forward-looking statements,” including but not limited
to statements relating to the current and expected state of the securities market and capital market
assumptions. While these forward-looking statements represent our judgments and future expectations
concerning the matters discussed in this document, a number of risks, uncertainties, changes in the
market, and other important factors could cause actual developments and results to differ materially
from our expectations. These factors include, but are not limited to (1) the extent and nature of future
developments in the US market and in other market segments; (2) other market and macroeconomic
developments, including movements in local and international securities markets, credit spreads, cur-
rency exchange rates and interest rates, whether or not arising directly or indirectly from the current
market crisis; (3) the impact of these developments on other markets and asset classes. UBS is not under
any obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking
statements whether as a result of new information, future events, or otherwise.
Emerging Market Investments

Investors should be aware that Emerging Market assets are subject to, among others, potential risks
linked to currency volatility, abrupt changes in the cost of capital and the economic growth outlook, as
well as regulatory and sociopolitical risk, interest rate risk and higher credit risk. Assets can sometimes
be very illiquid and liquidity conditions can abruptly worsen. CIO GWM generally recommends only
those securities it believes have been registered under Federal US registration rules (Section 12 of the
Securities Exchange Act of 1934) and individual State registration rules (commonly known as “Blue
Sky” laws). Prospective investors should be aware that to the extent permitted under US law, CIO
GWM may from time to time recommend bonds that are not registered under US or State securities
laws. These bonds may be issued in jurisdictions where the level of required disclosures to be made by
issuers is not as frequent or complete as that required by US laws.
Investors interested in holding bonds for a longer period are advised to select the bonds of those
sovereigns with the highest credit ratings (in the investment-grade band). Such an approach should
decrease the risk that an investor could end up holding bonds on which the sovereign has defaulted.
Subinvestment-grade bonds are recommended only for clients with a higher risk tolerance and who
seek to hold higher-yielding bonds for shorter periods only.
Nontraditional Assets
Nontraditional asset classes are alternative investments that include hedge funds, private
equity, real estate, and managed futures (collectively, alternative investments). Interests of
alternative investment funds are sold only to qualified investors, and only by means of offering docu-
ments that include information about the risks, performance and expenses of alternative investment
funds, and which clients are urged to read carefully before subscribing and retain. An investment in an
alternative investment fund is speculative and involves significant risks. Specifically, these investments
(1) are not mutual funds and are not subject to the same regulatory requirements as mutual funds;
(2) may have performance that is volatile, and investors may lose all or a substantial amount of their
66
Disclaimer
investment; (3) may engage in leverage and other speculative investment practices that may increase
the risk of investment loss; (4) are long-term, illiquid investments; there is generally no secondary mar-
ket for the interests of a fund, and none is expected to develop; (5) interests of alternative investment
funds typically will be illiquid and subject to restrictions on transfer; (6) may not be required to provide
periodic pricing or valuation information to investors; (7) generally involve complex tax strategies and
there may be delays in distributing tax information to investors; (8) are subject to high fees, including
management fees and other fees and expenses, all of which will reduce profits.
Interests in alternative investment funds are not deposits or obligations of, or guaranteed or endorsed
by, any bank or other insured depository institution, and are not federally insured by the Federal De-
posit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Prospec-
tive investors should understand these risks and have the financial ability and willingness to accept
them for an extended period of time before making an investment in an alternative investment fund,
and should consider an alternative investment fund as a supplement to an overall investment program.
In addition to the risks that apply to alternative investments generally, the following are additional risks
related to an investment in these strategies:
– Hedge Fund Risk: There are risks specifically associated with investing in hedge funds, which may
include risks associated with investing in short sales, options, small-cap stocks, “junk bonds,” de-
rivatives, distressed securities, non-US securities and illiquid investments.
– Managed Futures: There are risks specifically associated with investing in managed futures pro-
grams. For example, not all managers focus on all strategies at all times, and managed futures
strategies may have material directional elements.
– Real Estate: There are risks specifically associated with investing in real estate products and real
estate investment trusts. They involve risks associated with debt, adverse changes in general eco-
nomic or local market conditions, changes in governmental, tax, real estate and zoning laws or
regulations, risks associated with capital calls and, for some real estate products, the risks associ-
ated with the ability to qualify for favorable treatment under the federal tax laws.
– Private Equity: There are risks specifically associated with investing in private equity. Capital calls
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UBS Year Ahead 2024

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Year Ahead 2024

Year Ahead 2024 – UBS David

4 Year Ahead 2024 – UBS House View

The Year Ahead

Outlook Key questions Investing

34 Hedge market risks

The Decade Ahead

Investing in the Investing in the Looking back and

45 What will generative 58 Getting in balance in

To find out more about the

Scott Webb | Unsplash

Never before in human history has a pandemic caused gov-

This leaves us in a new world, one defined by economic

What should we expect in the year ahead?

What’s the outlook

US think there is cause for optimism this time.

Negative contributions Positive contributions

What will China’s new normal mean

Buy quality stocks. We expect equity mar-

quality companies, including those in the

Lessons from history

Can the Fed defy history and avoid causing a

What’s the outlook

Inflation and rates Figure2

Expect bond yields to fall. We expect

Are higher debt and higher rates

Lessons from history

What does history suggest about the path

Rate cuts can be sharp

Source: Bloomberg, UBS, as of November 2023

How will politics

US presidential election the election or even preventing a candidate

san basis. This would reduce the likelihood Russia-Ukraine war

Taiwan. While we expect mutual interest in Investment implications

Lessons from history

Do US presidential elections impact markets?

Don’t vote with your portfolio Best performance

Worst Average 33.7 37.9

Downside scenario: Alternative downside scenario:

Paolo Sbalzer | pexels

Manage liquidity appealing to sell USD upside to generate

Fixed term deposits Bond ladders

Structured solutions with capital How to structure your liquidity

The outlook for bonds Figure4

We expect government bond yields to fall The market is overly hawkish

expectations that the Fed will not cut rates 4

below 4% within the next five years are 3

overly hawkish, in our view. And in an uncer- 2 FOMC

could periodically attract safe-haven flows. 0

In the current environment, focus on

to investment grade and high grade.

ROIC = Return on invested capital

Focusing on sustainability in fixed income

Investors can invest in fixed income and equities while aligning

Multilateral development bank (MDB) bonds, which channel

Sustainable bonds—comprising green, social, sustainability, and

“ESG leaders” strategies within equities and bonds focus on

Trade the range

The outlook for currencies Figure6

Inflation and rates Figure2

Fixed term deposits Bond ladders

Structured solutions with capital How to structure your liquidity

The outlook for bonds Figure4

The outlook for currencies Figure6

Defensive structured investments Figure7

Oil and energy stocks against higher longer-dated bond yields.

Credit arbitrage ents opportunities for discerning managers

Distressed debt already seen some dislocation, with prop-

History shows that the advent of new Figure9

Energy disruption Meanwhile, decarbonizing the heating and

Healthcare disruption sonalize medicines, although it is too early

Private markets provide access Private equity

Figure11 Thematic growth. For investors seeking to

Real assets istics—high barriers to entry, demand inelas-