- Scenario 1 –"The song remains the same" – represents a consensus scenario, in which global growth remains modest, while inflation remains subdued. The world remains in low gear, with industrialized countries closer to their trend growth and emerging countries lagging their (higher) trend growth rates. This scenario is supportive for most global asset classes, as growth is low enough to maintain accommodative policy in many regions, but high enough to continue recovery from the financial crisis.
- Scenario 2 – "The party gets going" – represents the most bullish scenario, in which growth is closer to historical trends for all industrialized countries except for the eurozone. Emerging countries take advantage of the ensuing export opportunities, but still grow below the speeds experienced in the last 20 years. The US and Japan are the stars of this growth episode, which gradually allows peripheral European countries to get back on their feet, thanks to more supportive monetary policies. This scenario is strongly positive for developed and emerging markets equities, while fixed income in developed markets would likely produce negative total returns.
- Scenario 3 – "European policy mistakes spoil the party" – represents the most bearish scenario, in which actions by the European Central Bank (ECB) or other institutions lead to a return to recession in Europe, where inflation falls close to zero. The effects of a slowdown in Europe spill over to other regions, leading to negative returns for both developed and emerging markets equities, and mixed results for fixed income and alternative asset classes.
UBS Global Asset Management: All Eyes Still On Central Banks For Driving Asset Class Returns
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