The good times for risky assets may continue to roll

“Safe” and “risky” assets are both on track for a strong final quarter of the year, and we think next year will deliver more of the same. After all, we think that the main tailwind this quarter – growing expectations that central banks will cut interest rates earlier, and by more, than investors had previously envisaged – still has a bit more room to run in most economies. So, having notched up negative nominal returns, on average, over the past decade, we project average annual returns of ~5% from DM government bonds over 2024 and 2025.

For equities, the outlook is even brighter in our opinion. As well as benefiting from a cyclical economic recovery and easing monetary policy next year, we think stocks will be lifted by enthusiasm around Artificial Intelligence (AI). We set out our thoughts on this issue here: the key point is that, once near-term concerns over an economic downturn pass, we think investors will turn their attention back to the economic benefits of AI; and as tends to be the case with such transformative technology, we think investors will look to crystalise the gains up front. We project average annual returns of ~20% from global equities in 2024 and 2025.