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1、 Outlook 2025Building on StrengthEasing global policy Normalizing policy rates U.S.&Japan over EM Continued U.S.housing shortage Productivity gains Increased dealmaking Capital investments AI:Boom or bust?Health care disruption Automation&robotics Building power infrastructure Redefining security El

2、ection impacts Defining Trump 2.0 Sunsetting tax policy Managing rate volatility Anti-trust risk Anti-establishment surge Portfolio resilience The wealth check Finding value in income Defending against inflation Reconfigured returns The gold rush Investment landscapes Evergreen alternatives Sports&s

3、treaming The 21st-century space race Liability managment Reimagined cities INVESTMENT AND INSURANCE PRODUCTS ARE:NOT FDIC INSURED NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT OR OTHER OBLIGATION OF,OR GUARANTEED BY,JPMORGAN CHASE BANK,N.A.OR ANY OF ITS AFFILIATES SUBJECT TO INVESTMENT

4、RISKS,INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED The views expressed herein are based on current conditions,subject to change and may differ from other JPMorgan Chase&Co.affiliates and employees.The views and strategies may not be appropriate for all investors.Investors should speak to

5、 their financial representatives before engaging in any investment product or strategy.This material should not be regarded as research or as a J.P.Morgan Research Report.Outlooks and past performance are not reliable indicators of future results.Please read additional regulatory status,disclosures,

6、disclaimers,risks and other important information at the end of this material.2025 OUTLOOK REPORT 2 2025 OUTLOOK REPORT Foreword As we approach the end of the year,various headwinds intersect economies and markets.The global economy is growing at a good pace.Inflation has cooled.But geopolitical ris

7、ks havent gone away.In fact,theyve gotten worse.Conflicts in the Middle East and in Ukraine continue.In the U.S.,were dealing with the results of a contentious election.Yet markets produced strong gains over 2024.A year ago in this Outlook,we said that forward-looking returns across different asset

8、classes looked more promising than they had been in more than a decade.Turns out that was correct.Investors are now positioned to build on strength.This 2025 Outlook,the work of our Global Investment Strategy group,explores how global monetary policy easing and accelerating capital investment,especi

9、ally in AI,will likely power markets forward.To protect wealth and defend against increasing macroeconomic instability,relying on income and adding diversification can strengthen portfolios.Whatever the markets have in store,we will remain by your side as your financial partner.Thank you for continu

10、ing to put your trust in J.P.Morgan.Sincerely,Kristin Lemkau CEO,J.P.Morgan Wealth Management 3 2025 OUTLOOK REPORT Key takeaways We believe 2025 will be the year of:01 Easing global policy We believe policy rates will normalize and economies will expand.02 Accelerating capital investment We see con

11、tinued spending on AI,power,infrastructure and security.03 Understanding election impacts In the U.S.,we expect less regulation,wider deficits and more tariffs.04 Renewing portfolio resilience We are emphasizing income and real assets within portfolios.05 Evolving investment landscapes We anticipate

12、 opportunities in evergreen alternatives,sports and cities.4 2025 OUTLOOK REPORT Contents Part 01 Easing global policy Normalizing policy rates U.S.&Japan over emerging markets&China Continued U.S.housing shortage Productivity gains Increased dealmaking Part 02 Accelerating capital investment AI:Boo

13、m or bust?Health care disruption Automation&robotics Building power infrastructure Redefining security Part 03 Understanding election impacts Defining Trump 2.0 Sunsetting tax policy Managing rate volatility Anti-trust risk Rising anti-establishment movements Part 04 Renewing portfolio resilience Th

14、e wealth check Finding value in income Defending against inflation Reconfigured returns The gold rush Part 05 Evolving investment landscapes Evergreen alternatives Sports&streaming The 21st-century space race Liability management Reimagined cities AsiaPart 06 Latin America Global perspectives Europe

15、 5 2025 OUTLOOK REPORT Introduction In 2024,the macroeconomic stars aligned to deliver exceptional market performance.Inflation fell to palatable rates,GDP growth proved strong,corporate profit growth accelerated and central banks cut policy rates.Global stocks returned 20%-plus,while bonds gained.G

16、lobal multi-asset portfolios built on their 16.5%gain from 2023 with a total return of 12.5%.Heres the good news as you consider an action plan for 2025:Youre poised to build on strength.The past years market gains provide a solid foundation,and just as important,the flexibility to weigh different a

17、pproaches and fresh perspectives.6 2025 OUTLOOK REPORT In our 2025 Outlook,we present a range of ideas our Outlook 2025 explores the dimensions and top 25 for 25 to help you prepare for the coming year.implications of these themes,and how they We believe five key themes will drive markets in 2025:mi

18、ght inform your own planning,both through Easing global policy The global economy is in a better state of balance,allowing global central banks to cut rates and support economic growth.Falling policy rates could impact everything from U.S.housing to European productivity.Among the questions we consi

19、der:Should investors follow past“easing cycle”playbooks and buy cyclical assets such as emerging markets?Will dealmaking rebound?Accelerating capital investment Policymakers are focused on bolstering growth,profit-flush companies have money to spend and three powerful trends require enormous capital

20、 infusions:artificial intelligence(AI),power and energy,and security.How close are robots to becoming a part of daily life?What sector is most exposed to AI disruption?Understanding election impacts In the wake of the November U.S.elections,investors are pondering the trajectory for sovereign debt a

21、nd deficits,and considering what election results around the world tell us about the power of anti-establishment movements.What is the outlook for tax policy?Will anti-trust sentiment continue?Renewing portfolio resilience To protect the recent surge in household wealth and manage increased macroeco

22、nomic volatility,clients need resilient portfolios.This could mean a greater focus on income,returns that are less correlated to stocks and bonds and strategies that provide downside protection without foregoing potential returns.Where should investors focus?Evolving investment landscapes 2025 will

23、be characterized by new frontiers in an evolving investing landscape.Among them:evergreen alternatives(investment funds with no fixed date of maturity)and sports investing.Who wins in the 21st-century space race?How is the“new normal”work-life balance changing cityscapes?the end of 2024 and througho

24、ut 2025.A note of caution:We dont forecast a reprise of the past years handsome public market gains.Valuations already reflect the economic conditions that we thought would drive strong returns in 2024.The economy looks to have managed a soft landing(the recession obsession,as we called it,has faded

25、),and inflation has cooled.In 2025,the balance between tailwinds(continued global economic expansion,falling interest rates,healthy earnings growth)and headwinds(elevated valuations,especially in U.S.large-cap stocks,tight spreads in investment-grade and high-yield bonds,increased macroeconomic vola

26、tility and ongoing geopolitical risks)suggest that portfolio returns are likely to outpace cash but also revert to trend-like rates.We suggest that investors consider maintaining balanced positioning between offense and defense,stocks and bonds,and income and capital appreciation.Private equity coul

27、d benefit from growing capital investment and revived dealmaking,while infrastructure,real estate and other real assets could potentially insulate against both geopolitical and inflation risks.We believe investors should consider keeping some capital available to potentially take advantage of opport

28、unities that may arise.We identify some of those potential opportunities on the following pages.7 2025 OUTLOOK REPORT Part 01 Easing global policy Normalizing policy rates U.S.&Japan over Emerging Markets&China Continued U.S.housing shortage Productivity gains Increased dealmaking 8 EASING GLOBAL PO

29、LICY We believe 2025 will be the year of the global easing cycle,which underpins our first five ideas.Falling policy rates will support trend-like economic growth in the United States and the Eurozone,but not boost demand so much that it reignites inflation.In China,policymakers seem set on ensuring

30、 that growth stabilizes,especially in response to the increased likelihood of higher U.S.tariff rates.9 EASING GLOBAL POLICY 01 Normalizing policy rates If 2024 answered the question:“When will policy rates the growth outlook is worse than it is in the United start to fall?”2025 will answer the ques

31、tion:“How States.And current yields provide income.In U.S.low could rates go?”corporate credit and municipal markets,all-in yields still trade well above 5%on a tax-equivalent basis.Of the 37 global central banks that we track,27 are cutting policy rates,including every G10 central How might lower p

32、olicy interest rates affect the bank outside of Japan.We believe policymakers will economy?In the most recent cycle,rate hikes had a continue to nudge rates lower.In the United States,surprisingly limited impact on the broad economy.Rate bond market pricing implies an easing cycle that cuts may have

33、 a similarly muted impact.The global ends in the first quarter of 2026 with the policy rate easing cycle will likely support economic growth and near 3.5%.In Europe,investors anticipate policy rates risk assets such as stocks and high-yield bonds,but falling below 2%by the end of 2025.We dont see we

34、 dont think it will spark a surge in borrowing that many reasons to disagree with the markets view.pushes growth and inflation to an above-trend rate.Despite the pivot in central bank policy,longer-term Commercial real estate could be at a turning point,bond yields have fallen only marginally over t

35、he last and we see potential opportunities for net operating year.There is still value in fixed income significant income growth in residential housing,industrial and value if weaker growth were to materialize.This could power-related property,and specialized workspaces be especially important in Eu

36、ropean markets,where(e.g.,life sciences,health care and media).27 OF THE 37 CENTRAL BANKS THAT WE TRACK ARE NOW LOWERING INTEREST RATES Number of central banks with last move as a hike vs.a cut 40 Hiking Cutting Net 30 20 10 0 -10 -20 -30 -40 02 04 06 08 10 12 14 16 18 20 22 24 Sources:Individual ce

37、ntral banks,FactSet.Data as of October 25,2024.Note:this analysis includes 37 central banks.10 EASING GLOBAL POLICY OECD ECONOMIES ARE ONCE AGAIN GROWING AT A TREND-LIKE PACE Real GDP growth&trend,quarterly SAAR,%0%-2%-4%2%4%6%8%17 18 19 20 21 22 23 24 Real GDP growth Trend real GDP growth Sources:O

38、ECD,Haver Analytics.Data as of June 30,2024.INFLATION HAS RETURNED TO TARGET Headline inflation YoY,%change 0%2%4%6%8%10%12%Latest Cycle peak U.K.Eurozone Australia Canada U.S.(PCE)China Japan Sources:Bank for International Settlements,Australian Bureau of Statistics,Bureau of Economic Analysis,Chin

39、a National Bureau of Statistics,Haver Analytics.Data as of September 30,2024.11 EASING GLOBAL POLICY 02 U.S.&Japan over emerging markets&China Amid global central bank easing,some investors will be tempted to increase their exposures to emerging markets.In past rate-cutting cycles,falling rates have

40、 supported emerging market(EM)assets through higher growth,increased capital flows and weaker currencies that boost exports.But we take a more cautious view.We expect developed market(DM)equities to outperform their EM counterparts in 2025,as they have for eight of the past 10 years.EM economies fac

41、e a host of challenges.Most importantly,China confronts a crisis of consumer confidence(only slightly eased by the governments recently announced stimulus package).Deflating the countrys property bubble has proven very painful for households and businesses.A stark sign of wariness:Chinese retail sal

42、es are 16%below their pre-pandemic trend.1 China also faces the prospect of a renewed trade war with the United States.More broadly,even when EM companies do deliver strong revenue and profits,shareholder dilution means that GDP growth does not always translate into earnings per share growth or mark

43、et returns.Volatility in earnings and currency valuations also disrupts compounding.The outlook for developed world equities,especially in the United States and Japan,looks much more compelling.U.S.profit margins appear stable at all-time highs.This decade,S&P 500 companies have returned nearly 75%o

44、f annual earnings to shareholders through dividends and net buybacks.In the 2000s that share was only 50%.2 While index concentration in big tech firms remains a concern(the top 10 companies account for 36%of S&P 500 market capitalization,the highest on record),every sector in the S&P 500 is expecte

45、d to deliver positive earnings growth in 2025.This hasnt happened since 2018.3 The combination of strong earnings growth and elevated valuations in U.S.large-cap markets could potentially generate favorable returns.Meanwhile,Japanese corporations have in recent years made major strides toward improv

46、ed corporate governance and more shareholder-friendly practices.Corporate buyback announcements in 2024 doubled the previous record.4 This trend should benefit private equity investors in Japan as well.While we believe DM equities will outperform EM equities next year,Taiwan,India,Indonesia and Mexi

47、co stand out to us as regions that could deliver solid returns to shareholders in both public and private markets.1 Klein,M.C.(2024).Deeper Inside the Chinese Consumer Spending Data.The Overshoot.2 Goldstein,M.L.,&Zhao,L.(2024).Market Valuation:A Deal Breaker?Empirical Research Partners.3 Kostin,D.J

48、.,Chavez,D.,Snider,B.,Hammond,R.,&Ma,J.(2024).Updating our long-term return forecast for U.S.equities to incorporate the current high level of market concentration.Goldman Sachs.4 Goldman Sachs.Data as of August 19,2024.12 13EASING GLOBAL POLICY EARNINGS AND RETURNS LAG GDP GROWTH IN MANY MAJOR EMER

49、GING MARKETS Earnings growth and market return,multiple of GDP growth from 2010 to 2024 5x 4x 3x 2x 1x 0 x Earnings growth Market return Parity U.S.NASDAQ U.S.S&P 500 France Canada Taiwan Eurozone U.K.Australia India Brazil Korea China Sources:Bloomberg Finance L.P.,Michael Cembalest,J.P.Morgan Asse

50、t Management.Data as of 2024.Note:Japan excluded due to declining GDP.EASING GLOBAL POLICY 03 Continued U.S.housing shortage Lower mortgage rates could nudge housing sales higher,but they wont make homeownership affordable for enough new buyers.Demand for housing far exceeds available supply.We esti

51、mate that the shortage of new homes relative to trend household demand is between 2 million and 2.5 million units.Existing home sales currently running 25%below the 2017 2019 average pace wont surge anytime soon.Moreover,increasing damages from more frequent and extreme weather,combined with inadequ

52、ate and unaffordable flood and fire insurance,are becoming a growing concern for homebuyers.To restore affordability to 2019 levels,mortgage rates would need to plummet from around 7%to 3%,or wages would have to rise at their current pace for almost nine consecutive years.Restoring housing affordabi

53、lity to levels before the global financial crisis could take until the end of the decade in places such as San Diego and Denver,and even longer in Las Vegas and Miami.Home prices may continue to rise,though at a subdued pace.The dynamic of constrained existing home turnover and secular demand for ho

54、using bodes well for homebuilder operating margins,which have increased from 21%pre-pandemic to 26%(over the same period,earnings per share have nearly tripled).The largest players have an opportunity to gain market share.In 2025,we expect continued profit growth for both large-cap homebuilders and

55、real estate investors who own single-family homes.14 EASING GLOBAL POLICY IT COULD TAKE MANY YEARS TO RESTORE HOME AFFORDABILITY Expected restoration of housing affordability based on median from 1991 to 2006 Metro name When affordability is restored assuming no change in mortgage rate When affordab

56、ility is restored assuming a 1%drop in mortgage rate Cleveland Already restored Already restored Detroit Already restored Already restored Minneapolis Q4 2026 Q3 2025 Austin Q1 2027 Q1 2026 Washington D.C.Q2 2027 Q1 2026 National Q3 2027 Q1 2026 Charlotte Q4 2027 Q4 2026 San Francisco Q4 2027 Q4 202

57、6 Boston Q2 2028 Q1 2027 Portland Q3 2028 Q2 2027 Atlanta Q1 2029 Q1 2028 San Diego Q1 2029 Q1 2028 Dallas Q2 2029 Q1 2028 New York Q2 2029 Q2 2028 Phoenix Q1 2030 Q1 2029 Seattle Q1 2030 Q1 2029 Denver Q2 2030 Q1 2029 Tampa Q4 2030 Q4 2029 Las Vegas Q3 2031 Q1 2030 Los Angeles Q4 2032 Q4 2031 Miami

58、 Q1 2035 Q1 2034 Sources:Federal Home Loan Mortgage Corporation,National Association of Home Builders,National Association of Realtors,Haver Analytics.Data as of December 2023.Note:Regional affordability calculated using the median home price of the region with a 20%down payment at the prevailing Fr

59、eddie Mac 30-year fixed mortgage rate.The median family income is divided by the annualized mortgage payment to determine the housing affordability index.The projection of median family income is grown at the prevailing YoY HP(Hodrick-Prescott Lambda=500)adjusted income growth.The 1%decrease in mort

60、gage rate is assumed at 0.25%per quarter.Analysis assumes stable home prices.EASING GLOBAL POLICY 04 Productivity gains Policy easing by the European Central Bank(ECB)will likely support economic growth,but it probably cant help Europes weak productivity.Labor productivity in Europe is around four p

61、ercentage points behind where forecasters estimated it would be before the pandemic.That gap results in about EUR 2.2 trillion in lost cumulative output since 2019.This is in stark contrast to the United States,which has slightly exceeded pre-pandemic expectations.5 What explains Europes lagging pro

62、ductivity?Wed point to several causes:Europes reliance on external energy sources(natural gas prices in Europe are nearly 30 x higher than they are in the United States);its less dynamic technology sector;and its less flexible labor markets.Perhaps the greatest potential boon for global productivity

63、 over the coming decade will come from AI,where U.S.companies now enjoy a commanding lead in research and investment.Private investment in AI in the United States totaled nearly USD 70 billion in 2023.By contrast,Germany,France and Sweden each invested less than USD 2 billion.6 If AI-driven producti

64、vity gains are sustained,it could propel GDP growth without stoking inflation(and helpfully offset pressure from aging populations).This could support equity returns by boosting revenue and margins.Politically,too,increased productivity could make deficits more manageable,as higher economic growth i

65、ncreases tax income.Europes domestic productivity woes do not mean that investors should ignore the top European companies.The 50 largest European companies derive only 40%of their revenues from Europe,and the“national champions”within this cohort are dominant global players and best-in-class operat

66、ors.That said,we prefer U.S.equities to European equities in 2025.5 Relatively strong U.S.productivity growth has probably not been spurred by AI,at least not yet.Rather,the labor market churn from 2021 and 2022 may have resulted in more optimal matching between employee skills and employer tasks.It

67、 seems reasonable to assume that integrating AI technology could lead to a 17%cumulative boost to productivity over the next 20 years.Read more 6 Meeker,M.(2024).AI+Universities.BOND.16 EASING GLOBAL POLICY PLEASANT SURPRISE:U.S.PRODUCTIVITY HAS EXCEEDED EXPECTATIONS U.S.Labor Productivity Index,100

68、=2017 116 114 112 110 108 106 104 102 100 98 Congressional Budget Office Jan 2020 projection Actual 17 18 19 20 21 22 23 24 116 114 112 110 108 106 104 102 100 98 Sources:Congressional Budget Office(CBO)and the Bureau of Labor Statistics(BLS).Data as of June 30,2024.EU PRODUCTIVITY HAS FAILED TO MEE

69、T LOW EXPECTATIONS European Union Labor Productivity Index,100=2017 European Commission 2019 vintage forecast Actual 17 18 19 20 21 22 23 24 Source:European Commission.Data as of January 1,2024.17 EASING GLOBAL POLICY 05 Increased dealmaking 18 EASING GLOBAL POLICY CAPITAL MARKET LIQUIDITY IS JUST S

70、TARTING TO RECOVER Trailing 12-month high yield,leveraged loan&IPO volume as a%of GDP 8%7%6%5%4%3%2%1%0%99 01 03 05 07 09 11 13 15 17 19 21 23 Sources:J.P.Morgan,Bank of America,Bloomberg Finance L.P.Data as of September 30,2024.Note:Liquidity defined as IPO,HY bonds and leveraged loan issuance.Fall

71、ing interest rates and a less onerous regulatory environment could help sustain a nascent revival in dealmaking,which had been essentially frozen since 2021.Rate hikes,recession risks and geopolitical tensions left management teams understandably cautious despite strong corporate earnings.Merger and

72、 acquisition activity is at its lowest level since 2013.Limited capital market liquidity has been both a cause and a symptom of limited deal flow.In a search for liquidity,private equity investors are increasingly turning to the secondary markets,where volumes have reached record levels.New liquidit

73、y“tools”have also emerged in the private credit space,such as portfolio financings(NAV loans)and single asset recapitalizations.But dealmakers now feel more hopeful.Policy rates are heading lower,and the regulatory backdrop will likely be more friendly.As a backlog of deals stands ready to be cleare

74、d,increased private lending should help jump-start transactions.Opportunities exist across the capital structure.Senior secured direct lending will continue to finance private equity sponsor-backed transactions.Companies will apply junior and structured capital solutions to support strategic growth,

75、optimize their debt structures and provide interest payment flexibility.The likely beneficiaries of a better environment for dealmakers?Wall Street banks,private equity and credit firms,and private business owners.19 2025 OUTLOOK REPORT AI:Boom or bust?Part 02 Health care disruptionAccelerating Auto

76、mation&robotics Building power infrastructurecapital Redefining security investment 20 ACCELERATING CAPITAL INVESTMENT Businesses and governments are primed to spend:2025 will be the year of capital investment.Margins are elevated,profits and C-suite confidence are on the rise,and policymakers are f

77、ocused on supporting growth.Three global trends require enormous investment:AI,power and energy,and security.21 ACCELERATING CAPITAL INVESTMENT 06 AI:Boom or bust?Yes,U.S.big tech companies have opened the spigot for AI spending,but these are still early days.We think capital investment in AI could

78、take off in the coming years,driven by rapid improvements in AI models and corporate adoption.7 Consider:AI could potentially impact all services activity in the economy.Why are we so optimistic?First,because AI models are improving at a rapid rate.In 2021,large language models(LLMs,a type of AI)cou

79、ld answer less than 10%of competition-level math questions accurately.That share increased to 90%in 2024.8 The models are also becoming less expensive:The price per token for both OpenAIs higher-performing GPT-4o mini model and Anthropics Claude 3.5 Haiku model are 90%98%less expensive than their pr

80、edecessors.Second,overall corporate capital investment has been relatively muted,running at a 2.5%annual pace.By contrast,at the end of the dot-com boom at the turn of the millennium,corporate capex was running at a 10%annual pace(on a five-year rolling basis).In other words,there is plenty of room

81、for corporations across sectors to increase their AI spending as the use cases become more apparent and persuasive.22 ACCELERATING CAPITAL INVESTMENT 25%20%15%10%5%0%CORPORATE INVESTMENT HAS ROOM TO BOOM 5-year annualized change in corporate capital spending,%Post-war“Nifty Fifty”conglomerates Reaga

82、nism Personal computing&internet Housing Energy renaissance 45 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 Sources:Bureau of Economic Analysis,Haver Analytics.Data as of December 31,2023.Third,we see the potential for AI to“turn labor into software,”as Sequoia Capital has put it.9 As models improve

83、 their ability to reason instead of merely generating pre-trained responses,they will help create opportunities to disrupt the services sector.AI lawyers,AI software engineers and dare we say it?AI investment strategists could become commonplace.Public markets and their private partners have establi

84、shed a strong presence in the digital infrastructure of AI.The industrial and utilities companies that provide the physical components and energy needed for AI will also likely continue to benefit.Finally,the companies that most effectively improve their cost structures and increase productivity by

85、incorporating AI tools into their workstreams should outperform.In private markets,pure-play AI valuations have inflated,but we still see investment opportunities in the startups that can automate tasks and provide cost savings to businesses.Value may also be created in the potential applications th

86、at can help harness the technology for consumers.Over 20 major application layer companies(e.g.,Salesforce,Meta,Uber)were founded during the cloud and mobile transitions.10 AI could create a similar ecosystem.Adoption of AI could falter,of course.Regulation could stifle innovation.Energy sourcing co

87、uld prove onerous.And the models could run out of the data they use to train.But our analysis looking past the hype and drawing on the lessons of history tells us that AI offers significant investment opportunity.We see the potential for a clear bull case for the global economy and equity markets ne

88、xt year and beyond.7 Bick,A.,Blandin,A.,&Deming,D.J.(2024).The Rapid Adoption of Generative AI.National Bureau of Economic Research.8 Jensen,G.,Narayan,A.,Greene,A.,&Simon,L.(2024).Is an AI Bubble Ahead of Us or Behind Us?Bridgewater.9 While we expect AI productivity gains to coincide with a potenti

89、al increase in labor disruptions,we think the evidence is compelling for the creation of net new jobs,and we are already seeing corporates take action to fortify talent pipelines through upskilling and reskilling.10 Huang,S.,&Grady,P.(2024).Generative AIs Act o1:The Agentic Reasoning Era Begins.23 A

90、CCELERATING CAPITAL INVESTMENT 07 Health care disruption AI may quickly have an impact on the health care sector.The chart(on the following page)helps to understand why.The industries that could be most impacted by AI have a high share of labor costs in jobs that could be helped or displaced by LLMs

91、.For example,the health care technology industry has labor costs equivalent to around 35%of its sales.At the same time,economists estimate that 65%of the tasks performed by health care technology employees are exposed to AI disruption.For example,companies such as Veeva Systems,Teladoc and GoodRx th

92、at provide software solutions across the health care value chain could both reduce their labor costs and increase their revenues by incorporating AI into their businesses.11 24 ACCELERATING CAPITAL INVESTMENT In the pharmaceutical and biotech sectors,AI could also potentially improve the quality and

93、 quantity of drugs that progress from early-stage trials to market.Right now,only 7%of new drugs make it to market.Just a 5%increase in that success rate could mean 60 new drugs and USD 70 billion in incremental revenue over a 10-year period.12 In life science services,companies could use AI to desi

94、gn drug trials more optimally:from compound identification to participant selection.We also believe GLP-1 drugs will continue to drive revenue growth(glucagon-like peptide drugs control blood sugar and suppress appetite).According to our estimates,we think the total addressable market could grow fro

95、m 16 million people in the United States and the European Union in 2027 to over 40 million people.Beyond GLP-1s,we are focused on identifying companies in the health care sector that can use AI to modernize their business models to drive earnings growth.The clearest examples right now are in robotic

96、 surgery and imaging technologies used for diagnostics.WHO LOOKS VULNERABLE?HEALTH CARE TECH COULD BE IMPACTED BY AI 0%0%10%20%30%40%60%50%70%5%10%15%20%25%30%35%40%providers&services Health care equipment&supplies Life sciences tools&services Pharmaceuticals BiotechnologySHARE OF LABOR TASKS EXPOSE

97、D TO LLMS,%Healthcare technology Health care LABOR COSTS-TO-SALES Sources:Empirical Research Partners Analysis of 72 GICS industry groups for large-and small-cap stocks.Eloundou,T.,Manning,S.,Mishkin,P.,and Daniel Rock.“GPTs are GPTs:An Early Look at the Labor Market Impact Potential of Large Langua

98、ge Models.”Data as of May 2024.11 Data breaches in health care are the most costly of any industry,averaging USD 9.8 million per breach about 60%higher than the second-place financial sector due to vulnerable legacy technologies and stringent privacy rules.While AI amplifies this threat by enabling

99、cyber criminals to execute more sophisticated attacks,it has also helped firms reduce breach costs by 33%when used defensively.12 Morgan Stanley.(2022).Why Artificial Intelligence Could Speed Drug Discovery.25 ACCELERATING CAPITAL INVESTMENT 08 Automation&robotics Capital investment in AI will also

100、fast-track the adoption of automation and robotics,affecting industrial and consumer sectors.U.S.industrial companies are set to allocate 25%30%of their capital spending to automation over the next five years,up from 15%-20%over the last five years.13 This theme isnt new.Single-purpose robots have e

101、xisted for over half a century,and robotics returns for investors have been modest so far.But we think momentum is building for broader applications.As access to training data increases and the cost of hardware declines,general purpose robots may be closer to achieving the ability to reason.Globally

102、,companies have invested over USD 4 billion in funding more than 20“humanoid”robots.14 Eventually,robots(humanoid and otherwise)may become a part of our daily lives.Waymo is already providing more than 100,000 autonomous taxi rides per week.15 Health care and defense are two other areas where roboti

103、cs are becoming more prevalent.In October,Intuitive Surgical delivered 110 of its semi-autonomous,AI-enabled Da Vinci 5 robotic surgery systems,trouncing the 70 placements from the previous quarter.Earlier in the year,the U.S.Air Force announced a contract award with Anduril and General Atomics to d

104、evelop Autonomous Collaborative Combat Aircraft.The Department of Defense expects to spend nearly USD 3 billion per year on the program by 2029.We see investment opportunities in both public and private markets:in the semiconductor companies that provide the computing power,the software companies th

105、at harness that computing power,the industrial companies that capitalize on higher efficiency and the consumer companies that can deliver a game-changing product.13 Ajewole,F.,Kelkar,A.,Moore,D.,Shao,E.,&Thirtha,M.(2023).Unlocking the industrial potential of robotics and automation.McKinsey&Company.

106、14 Viswanath,S.,Khanna,V.,Liang,Y.,Srinivas,A.,&Cherian,Z.(2024).Robotics wont have a ChatGPT Moment.Coatue.15 Thompson,B.(2024).Taking Waymo,Uber and Waymo.26 ACCELERATING CAPITAL INVESTMENT AUTONOMOUS AIRCRAFT SPENDING IS SET TO SURGE DOD spending on selected autonomous aircraft programs,$billions

107、$3.5$3.0$2.5$2.0$1.5$1.0$0.5$0.0 All other CCA precursor programs Collaborative Combat Aircraft(CCA)0%5%10%15%20%30%25%35%Past 5 years Next 5 years 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29(E)(E)(E)(E)(E)Source:CSIS analysis of DOD FY15-29 RDT&E budget requests.Data as of August 6,2024.Note:The F

108、Y 2024 CCA figure includes a reported$150 million budget reprogramming request.AUTOMATION COULD ACCOUNT FOR 25%OF INDUSTRIAL CAPEX OVER THE NEXT 5 YEARS Average share of investment in automation by sector as a%of capital spending Logistics and Retail and Life sciences,Automotive Food and ul lent con

109、sumer health care and beverage goods pharmaceuticals Source:McKinsey&Company.Data as of 2022.27 28ACCELERATING CAPITAL INVESTMENT 09 Building power infrastructure We think capital investment into the power sector is about to ignite for three key reasons:the reindustrialization of U.S.manufacturing,i

110、ncreased use of electrification in clean energy solutions and surging demand from data centers.Overall,we expect power demand growth in the United States to increase by 5x to 7x over the next 35 years.Data center growth is a global phenomenon.The number of U.S.data centers,accounting for 40%of the g

111、lobal market,is growing 25%per year.In Q1 2024,the European,Latin American and Asia-Pacific data center markets grew inventory by 20%,15%and 22%year-over-year,respectively.16 Increased data center power requires more water for cooling and chip fabrication,often in water-stressed areas.Global data ce

112、nters are expected to grow their water usage by 6%annually.17 Large semiconductor fabrication facilities use the same amount of water as 300,000 households.18 We see opportunities for water infrastructure and efficiency solutions in parallel with growing power usage.More power will likely come from

113、nuclear energy.We note the equity markets validation of Constellation Energys and Microsofts agreement to restart the Three Mile Island nuclear power plant to supply energy to the tech giants data centers.This should spur further reinvestment in nuclear energy.Indeed,the surge in the Nuclear Renaiss

114、ance Index(+75%year to date)is based on market speculation that small modular reactors will be successfully deployed in the next few years.While renewable energy sources will continue to grow(the International Energy Agency believes that for every$1 invested in fossil fuels,$2 are invested in clean

115、energy),latency,transmission and storage costs mean that natural gas should remain a critical energy source.19 Investors looking to capitalize on the growing demand for power can focus on broad infrastructure funds,power generation and utility companies.16 CBRE.(2024).Global Data Center Trends 2024.

116、CBRE.Thompson,B.(2024).Taking Waymo,Uber and Waymo.17 Walsh,A.(2023).Behind the Data:Unveiling the Water Footprint of Artificial Intelligence.Bluefield Research.18 Hess,J.C.(2024).Chip Productions Ecological Footprint:Mapping Climate and Environmental Impact.Interface.19 International Energy Agency.

117、(2024).Investment in clean energy this year is set to be twice the amount going to fossil fuels.ACCELERATING CAPITAL INVESTMENT THE MARKET HAS VALIDATED NUCLEAR EXPANSION Constellation Energy share price,$300$280$260$240$220$200$180$160$140$120$100 Deal with Microsoft to restart Three Mile Island an

118、nounced Jan 24 Mar 24 May 24 Jul 24 Sep 24 Nov 24 Source:FactSet.Data as of October 31,2024.DATA CENTERS COULD IGNITE A SURGE IN POWER DEMAND U.S.power demand and 2024 generation capacity,TWh 4,400 4,300 4,200 4,100 4,000 3,900 3,800 3,700 2030 shortfall 137 TWh 24 generation Non-data centers Data c

119、enters 14 16 18 20 22 24(E)26(E)28(E)30(E)Sources:EIA,McKinsey&Company,Public Power,Bernstein.Data as of December 31,2023.29 ACCELERATING CAPITAL INVESTMENT ARMED CONFLICTS ARE AT AN 80-YEAR HIGH Number of global armed conflicts 10 15 20 25 30 35 40 45 50 55 60 46 51 56 61 66 71 76 81 86 91 96 01 06

120、 11 16 21 Sources:UCDP,Davies,Shawn,Therese Pattersson,Magnus berg,Gleditsch,Nils Petter,Peter Wallensteen,Mikael Eriksson,Margareta Sollenberg,and Hvard Strand.Data as of December 31,2023.30 ACCELERATING CAPITAL INVESTMENT 10 Redefining security As governments reassess their national security,they

121、will likely deliver higher levels of capital investment.Security covers not just traditional military defense,but cybersecurity,supply of critical natural resources,energy production,transportation and infrastructure.We think markets do not yet fully appreciate the investment prospects that this sec

122、ular shift will create.In the United States,the government seems likely to continue incentivizing domestic production of critical supplies.Shares in a North Carolinabased chipmaker surged 40%on the news that it secured USD 750 million in CHIPs Act funding to build two new semiconductor plants in the

123、 United States.Further,we highlight a U.S.government goal to diversify its reliance on concentrated aerospace and defense specialists20(which today account for 90%of the U.S.weapons production budget),21 and expand to established commercial companies and startups with expertise in areas such as AI,m

124、achine learning and 5G technology.The defense market could potentially generate revenues and market share for companies outside the traditional defense space.The Department of Defense budget has halved as a share of GDP from the height of the Cold War.Of the European Union members of NATO,16 of the

125、23 are currently on track to surpass the targeted 2%of GDP threshold in 2024.Ten years ago,the average member was only at 1.2%of GDP.Global military spending seems to have room to grow,especially in areas such as network-enabled weapons,which could be human-machine partnerships or fully autonomous.E

126、uropes security concerns reflect its reliance on external sources for critical goods and commodities.The European Union imports over 90%of digital products and services,depends on Asia for 75%90%of wafer fabrication capacity and relies on China for up to 70%of key raw materials such as nickel,copper

127、 and cobalt.22 Meanwhile,the BRICS+23 economies control 5x the natural gas reserves of the G7,have 3x the active-duty military personnel and double the oil reserves and uranium production.24 Last year,Russia boosted its defense budget by 25%to hit a new record.25 In all,we believe global spending on

128、 security will be comparable to the annual investment in cloud computing and e-commerce during the 2010s.Building out semiconductors,infrastructure and reliable,affordable power are not only pivotal levers for national security,but also for global economic competition.We are looking for opportunitie

129、s in the industrial,utilities,materials and energy sectors.All but the industrials sector trade at a discount to the broad market.Investors dont seem to be giving these companies much credit for future earnings growth,which we believe will be nearly double that of the market over the next few years.

130、In private markets,investors can find interesting prospects in smaller companies focused on innovation in technology-enabled defense systems and cybersecurity.20 Defined as companies whose only customer is the government,or those whose only commercial exposure is in aerospace.21 Allen,G.C.,&Berenson

131、,D.(2024).Why Is the U.S.Defense Industrial Base So Isolated from the U.S.Economy?CSIS.22 Draghi,M.(2024).The future of European competitiveness.European Commission.23 List of BRICS+countries.24 Seydl,J.(2024).How do geopolitical shocks impact markets?J.P.Morgan.25 Sauer,P.(2024).Last year,Russia bo

132、osted its defense budget by 25%to hit a new record.The Guardian.31 2025 OUTLOOK REPORT Defining Trump 2.0 Part 03 Sunsetting tax policy Understanding Managing rate volatility Anti-trust riskelection impacts Rising anti-establishment movements 32 UNDERSTANDING ELECTION IMPACTS In 2025,investors can s

133、hift from focusing on election outcomes to weighing election impacts.The results of elections around the world will impact the direction of tax policy,sovereign debt and deficits,trade policy,anti-trust initiatives and the popularity of anti-establishment candidates.33 UNDERSTANDING ELECTION IMPACTS

134、 11 Defining Trump 2.0 President Trump and the Republican Partys decisive victory in the 2024 election sets the stage for Trump 2.0.What could this mean for markets and the economy?Deregulation,increased merger and acquisition activity,a focus on domestic economic outcomes and the slim chance of low

135、er corporate tax rates provide the bull case.Indeed,the immediate market reaction to the election results showed that investors are favoring the U.S.over the rest of the world,along with small-cap stocks and regional banks.However,pro-growth initiatives could also lead to higher inflation and wider

136、budget deficits.Indeed,U.S.Treasury yields have moved back toward the highs for the year.Elevated mortgage rates may continue to stifle activity in the residential housing market and exacerbate the affordability crisis.Tariff policy presents perhaps the biggest risk to global growth.While we do not

137、believe blanket duties on all imports are likely,tariffs on specific goods or trading partners are.Retaliation from trading partners would exacerbate the negative shock to global trade.The election results make us marginally less positive on emerging market assets,industrial commodities and energy p

138、rices.Indeed,the negotiation around the 2017 Tax Cuts and Jobs Acts(TCJA)looms large in 2025,and the potential economic impacts of fiscal policy are more likely to be felt in 2026.34 UNDERSTANDING ELECTION IMPACTS 12 Sunsetting tax policy Congress will need to focus on tax policy next year.At the en

139、d of 2025,many of the provisions from the 2017 TCJA are set to expire(or“sunset”).If Congress does nothing,individual tax rates will revert to 2017 levels,the alternative minimum tax will impact many more high-income individuals,the 20%deduction for pass-through business income will end(affecting ma

140、ny partnerships,S corporations and sole proprietorships)and the lifetime estate,gift and generation-skipping transfer tax exemption will be cut in half(from around USD 28 million to USD 14 million for a married couple).Importantly,the 21%corporate tax rate included in the TCJA was a permanent change

141、.In all,if the temporary provisions in the TCJA expire,it would result in a 1.8%reduction in after-tax income for all U.S.households and a 3.1%reduction for the top 1%of earners.26 The Tax Foundation estimates that about 62%of filers would see an increase in taxes.Now that the Republican party contr

142、ols both chambers of Congress,we expect most,if not all,of the temporary provisions affecting individuals to be extended for some time.That said,given the tight margins in the House and the Senate,it may require some compromise around areas such as the state and local tax deduction cap.Further,the r

143、econciliation process requires legislation to be deficit neutral over a 10-year period.This means that still lower corporate tax rates could face headwinds even with a Republican president and Republican-controlled Congress.The economic and personal impact of any tax changes are not likely to be fel

144、t before 2026.We are also watching how tax policy is affecting migration.Analysis by our Chairman of Market and Investment Strategy,Michael Cembalest,shows that in the United States,almost all of the top 20 interstate migrations are from high-tax states such as New York,California and Illinois to lo

145、w-or no-tax states such as Florida,Texas,Arizona and Nevada.Indeed,outside the United States,we are seeing similar patterns.Families are increasingly moving to places such as Italy,Switzerland,Dubai,Greece and Spain.Key drivers include the attractiveness of tax policies and concerns about geopolitic

146、al turbulence and safety.26 Oshagbemi,C.,&Sheiner,L.(2024).Which provisions of the Tax Cuts and Jobs Act expire in 2025?Brookings.35 UNDERSTANDING ELECTION IMPACTS SEVERAL IMPORTANT PROVISIONS FROM THE TCJA WILL EXPIRE AT THE END OF 2025 For most individual taxpayers,the tax brackets would increase(

147、the top rate ncome ta brac ets will go from 37%to 39.6%).lternati e minimum ta TCJA raised the AMT exemption from$54,300 to$70,300 for individuals and$84,500 to$109,400 for married couples.It also suspended the deductibility of many expenses,such as those for some investment management fees.Sunset w

148、ould restore the deductibility of those expenses,thereby indirectly subjecting many more taxpayers to the AMT,which would disallow those deductions.tate and local ta deduction ortgage interest deduction Under TCJA,a taxpayer may claim an itemized deduction of up to only 0 000 000 or arried ling sepa

149、ratel or t e aggregate o state and local income taxes paid.Sunset would remove this cap.However,as noted above,with the reduction of the AMT exemption under which SALT payments are not deductible many taxpayers may not be able to take advantage of this deduction.The deduction for interest on“acquisi

150、tion indebtedness”is limited to the interest attributable to debt principal of up to$750,000($375,000 for arried ling separatel unset ould restore t e illion00 000 limitations on debt principal.Also,there may be greater freedom to deduct interest paid on home equity loans,such as HELOCs.uali ed busi

151、ness income deduction The QBI deduction was introduced by the TCJA.The provision allows non corporate ta pa ers to ta e a deduction o up to 20 o t eir uali ed business income”(QBI)from a partnership,S corporation or sole proprietorship.Sunset would eliminate this deduction.haritable gi ing From 2018

152、 to 2025,the annual deduction limit for contributions to public c arities as increased to 0 o adjusted gross incoe e liit is scheduled to revert to 50%.state and gi t ta Under the TCJA,the base lifetime exclusion amount for gift and estate tax as dou led to 0 illion adjusted annuall or in ation n 20

153、2 t e lifetime exclusion amount is$13.61 million for individuals and$27.22 million or couples unset could drasticall liit t e a ilit to gi t and or trans er at death by resetting this amount to probably a little over$7 million for individuals(about$14 million for married couples)before maximizing th

154、e e clusion and incurring a 0 at ta on t e e cess Source:“A Look Ahead at Expiring Tax Provisions,”Tax Foundation.Accessed December 12,2023.36 UNDERSTANDING ELECTION IMPACTS BORROWING BINGE:GLOBAL SOVEREIGN DEBT CONTINUES TO RISE,ESPECIALLY IN THE U.S.Debt as a%of GDP for advanced economies 160%140%

155、Advanced economies U.S.debt to GDP ratio,U.S.debt to GDP ratio debt to GDP ratio no TCJA extension projection,with TCJA extension 40%20%0%60%80%100%120%01 05 09 13 17 21 25(E)29(E)33(E)Sources:International Monetary Fund.Data as of December 31,2023.Congressional Budget Office,Haver Analytics.Data as

156、 of June 18,2024.13 Managing rate volatility 2025 could be another year when active management in fixed income plays a significant role in investment portfolios.In 2024,our clients added over USD 20 billion to fixed income ladders.While we believe starting yields in fixed-income provide value,especi

157、ally in the context of an easing cycle,we urge investors to consider adding active fixed-income strategies to complement passive strategies.First,investors need to consider the outlook for sovereign debt and deficits across many developed markets.Global sovereign debt is currently 110%of GDP for adv

158、anced economies,and the Congressional Budget Office(CBO)projects that the U.S.federal debt held by the public will reach 122%of GDP by 2034.Markets could view any type of expansionary fiscal policy and increased government spending as a reason to demand higher yields for holding long-duration sovere

159、ign debt.While it has settled,inflation is still higher than it was in the previous cycle,and it could take just a small fiscal impulse to ignite accelerating price pressures.Bond market implied volatility is double what it was before the global rate-hiking cycle began at the end of 2021.Passive fix

160、ed-income investing can be an efficient way to buy and hold bonds to maturity,but we believe active management of interest rate risk(duration)and credit risk may offer opportunities for enhanced returns.Owning active fixed-income funds also enables access to more sub-sectors within fixed income(such

161、 as securitized credit and high yield municipal bonds)that are not well represented in indices.In fact,the median active fixed income manager has historically outperformed its benchmark by between 20 basis points and 60 basis points over the last five years.27 Whatever approach you take,step back an

162、d see the big picture:Owning bonds is an essential strategy for diversifying against equity risk within a portfolio.Our clients still have over USD 600 billion(26%of their assets under supervision)invested in securities that mature within one year.We believe in owning bonds over cash,and think using

163、 both active and passive strategies is prudent.27 SimFund,using Morningstar categories for classification.(June 30,2024).37 UNDERSTANDING ELECTION IMPACTS AS PROFIT MARGINS GROW,LABORS SHARE OF REVENUE SHRINKSPROFIT MARGINS,%ro t argins 22%U.S.labor share(RHS)86%82%19%16%78%74%13%70%10%7%66%U.S.LABO

164、R COMPENSATION ASA SHARE OF NET VALUE ADDED(EXCLUDING TAXES),%85 90 95 00 05 10 15 20 Sources:Bureau of Economic Analysis,Bureau of Labor Statistics,Haver Analytics.Data as of June 30,2024.14 Anti-trust risk Although we anticipate a rebound in dealmaking and a reduction in anti-trust action under a

165、Trump administration,anti-trust policies are still a longer-term risk for markets.Rising U.S.corporate profit margins(now 2.5 percentage points above pre-pandemic levels)and a declining labor share of corporate incomes could intensify that government resistance.We may well see continued action by bo

166、th the U.S.Department of Justice and the European Commission.Policymakers and the electorate seem to sense that the secular decline in labors share of business output left undisturbed could lead to more corporate concentration,less labor bargaining power and a shift to a tax system that favors capit

167、al and corporations over labor income.In other words,both the electorate and policymakers could look to diminish,if not reverse,that secular decline by restraining big corporate mergers and acquisitions.We do note one important caveat here:As governments are increasingly viewing data and technology

168、as strategic assets,some large technology firms have effectively functioned as tolerated monopolies.This may not change even if overall anti-trust activity picks up.UNDERSTANDING ELECTION IMPACTS 15 Rising anti-establishment movements 39 UNDERSTANDING ELECTION IMPACTS The U.S.election may have domin

169、ated investor focus in the second half of 2024,but the impacts of the global election super-cycle will be felt in 2025.Around the world,a clear trend emerged.For the first time since the data were recorded in 1905,every single incumbent governing political party in developed economies that faced re-

170、election in 2024 lost vote share.The past years elections include:European Union Parliament European Commission President Ursula von der Leyen will serve another term,but several anti-immigration and euro-skeptic parties made gains.France President Emmanuel Macron salvaged a coalition,but Marine Le

171、Pens National Rally continues to threaten the establishment.United Kingdom The Conservatives suffered a landslide defeat.Japan The Liberal Democratic party lost.Sweden,Finland and New Zealand Center-left governments lost.Australia and Belgium Center-right governments lost.India Prime Minister Narend

172、ra Modis BJP lost its majority.Elsewhere,Russias President Vladimir Putin secured a six-year term in an election with no viable opposition.In Mexico,President Claudia Sheinbaum won in a landslide victory that allowed for a controversial judicial reform and a new law mandating that wages outpace infl

173、ation.While investors navigate the implications of changes in governing power globally,they should also monitor the risk that anti-establishment politicians continue to pose to markets.Going forward,investors should not only think about political risk in terms of right and left,but also establishmen

174、t and anti-establishment.In our view,the threat of anti-establishment parties could lead to increased political and economic volatility.That in turn underscores the need to craft resilient investment portfolios.40 2025 OUTLOOK REPORT The wealth checkPart 04 Finding value in income Defending against

175、inflationRenewing Reconfigured returns portfolio The gold rush resilience 41 RENEWING PORTFOLIO RESILIENCE To safeguard the recent surge in household wealth and defend against increased macroeconomic volatility(due to higher inflation,more-active policymakers and less globalization,to name a few cau

176、sal factors),investors need resilient portfolios.In our view,three approaches relying more on income;adding assets that may help mitigate the threat of inflation;and using options and derivatives strategies to shift risk and reward profiles can help portfolios withstand unexpected shocks.42 RENEWING

177、 PORTFOLIO RESILIENCE 16 The wealth check Over the past year,U.S.household net worth has climbed to a record of nearly USD 160 trillion.28 European Central Bank data suggests that household wealth in the Eurozone has grown to 60 trillion euros from less than 50 trillion before the pandemic.Since 201

178、9,millennials(born 1981 1996)have nearly doubled their net worth,which is now higher than that of Gen Xers(19651980)or baby boomers(19461964)at similar ages.Thats good news,clearly.But the gains also offer an opportunity for a strategic reassessment of your portfolio,which you can conduct from a pos

179、ition of strength.For some,the opportunity may be an urgent necessity.Consider:If an investor allocated to a 60/40 stock-bond portfolio at the beginning of 2020 and didnt rebalance,they would now have an 80/20 allocation.For many others,major changes may not be necessary.43 RENEWING PORTFOLIO RESILI

180、ENCE Managing concentrated positions is also critical for portfolio resilience.Our research has found that nearly half of all publicly traded companies at some point suffer a catastrophic loss in value,and nearly two-thirds underperform the index.29 Further,a concentrated position in cash can also b

181、e detrimental to reaching long-term goals or even maintaining purchasing power.Now is a good time for investors to reassess their objectives and risk tolerances,and to consider how their various assets align to those goals.Many may find it prudent to lock in gains and reduce exposure to fully valued

182、 indices,achieving their primary lifestyle goals with less risk.There are several ways to do this tax efficiently,including gifting the longest-term appreciated positions to charity,or using strategies such as variable prepaid forwards to monetize and diversify concentrated positions.MILLENNIALS HAV

183、E HIGHER NET WEALTH THAN BOOMERS AND GEN X AT THE SAME AGE Inflation-adjusted net worth by generation at similar ages,$thousands$300$250$200$150$100$50$0 Millennials as of Gen X as of Boomers as of 2019 and 2024 2003 and 2008 1989 and 1992 Sources:Federal Reserve,Bureau of Labor Statistics,Rubinson

184、Research.Data as of June 30,2024.Note:Real worth per household measured in 2017 dollars,adjusting using CPI.The dark bars measure wealth when each generation was 2338 years old.The light bars reflect wealth when each generation was 2843 years old.28 Board of Governors of the Federal Reserve System(U

185、.S.),Households;Net Worth,Level,Federal Reserve Bank of St.Louis,November 8,2024.29 Cembalest,M.,Manoukian,J.,&Datta,K.(2024).The Agony&The Ecstasy:The risks and rewards of a concentrated stock position,part IV.J.P.Morgan.44 RENEWING PORTFOLIO RESILIENCE 17 Finding value in income One way to increas

186、e portfolio resilience is to increase the share of total return that is driven by income.Many investors will be looking for new sources of income as cash and Treasury bill yields decline.If history is any guide,somewhere between USD 600 billion and USD 2.2 trillion of money market fund assets will m

187、ove to find a new home.Core fixed income(investment-grade sovereign,municipal and corporate debt)is the first place to look for yield.Investment-grade corporate bonds still yield over 5%.Credit spreads are tight but are supported by low downgrade risk and high credit quality.While returns are subjec

188、t to market fluctuations,high yield investors may find opportunities for attractive returns,potentially exceeding 5%,even with some spread widening.Additionally,U.S.taxpayers might consider preferred equities,which can provide tax-efficient income of around 6%7%.And dont forget about dividend-paying

189、 equities,which trade at a substantial discount relative to the market.In addition,quality dividend stocks tend to exhibit only 80%of the volatility of the broad market.In other words,they may provide a less volatile investment experience at a potentially lower valuation.Finally,illiquid investments

190、 in sectors such as direct lending,infrastructure,real estate and asset-backed finance can offer potential income opportunities in the mid-to high-single digits,often exhibiting low correlations to stocks and bonds.As the global easing cycle continues and risk-free rates decline,riskier sources of i

191、ncome may become more attractive as we move through 2025.45 RENEWING PORTFOLIO RESILIENCE UP TO$2 TRILLION IN CASH COULD FIND A NEW HOME Cumulative fall in money market fund assets in previous rate-cutting cycles,%YIELD WILL BECOME MORE VALUABLE AS POLICY RATES FALL Pre-tax yields across asset class

192、es,%Source:Bloomberg Finance L.P.Data as of September 30,2024.2001 rate-cutting cycle-$470B-$1365B-$490B-$626B-$2192B 2008 rate-cutting cycle 2020 rate-cutting cycle 2025 low estimate 2025 high estimate-30%-35%-40%-25%-20%-15%-10%0%-5%12.1%9.5%7.9%6.5%6.2%5.5%4.6%4.4%4.4%3.9%3.6%3.2%2.7%1.3%Equities

193、 Fixed income Alternatives Cash 14%12%10%8%6%4%2%0%Direct lending Global transport high yieldU.S.Commercial mortgages Preferreds investment gradeU.S.cashU.S.Global REITsU.S.10-year real estate U.S.Global infra.Euro govt.(710yr.)International equity equity U.S.Sources:BAML,Bloomberg Finance L.P.,Clar

194、kson,Cliffwater,Drewry Maritime Consultants,Federal Reserve,FTSE,MSCI,NCREIF,FactSet,Wells Fargo,J.P.Morgan Asset Management.Data as of August 31,2024.RENEWING PORTFOLIO RESILIENCE 18 Defending against inflation Core fixed income is still a critical diversifier in investment portfolios.But another w

195、ay to potentially enhance portfolio resilience is to add assets that could mitigate the threat of inflation.Traditionally diversified portfolios faced a serious challenge over the last four years,as stocks and bonds often moved in the same direction that is,they were positively correlated.In 2022,wh

196、en inflation spiked,both stocks and bonds fell steeply.Investors were reminded that while bonds can help diversify against growth shocks,they cannot protect against inflation shocks.Over the long run,we believe the negative stock-bond correlation will hold.But we see a strong argument for owning ass

197、ets that can provide diversification to both equities and fixed income.What fits the bill?Historically,real estate,commodities and infrastructure have exhibited low correlations to stocks and bonds.At the same time,diversified hedge fund strategies have proved their worth in the post-COVID period.Co

198、mposite hedge funds have outperformed core fixed income by a remarkable 20%cumulatively since the end of 2020.On a go-forward basis,we anticipate hedge funds can potentially capture over 80%of the upside of a traditional 60/40 portfolio,while experiencing approximately half of the volatility.We are

199、also interested in even more specialized assets(such as royalties)that provide stable cash flows with little to no correlation to traditional markets.47 RENEWING PORTFOLIO RESILIENCE SEVERAL PRIVATE MARKET ASSETS HAVE OFFERED NEGATIVE CORRELATIONS TO STOCKS AND BONDS Correlation of quarterly returns

200、 from Q2 2008 to Q1 2024 Core RE Core RE Core RE Core Infra.Hedge Funds Sources:Bloomberg Finance L.P.,Burgiss,Cliffwater,FTSE,HFRI,MSCI,NCREIF,J.P.Morgan Asset Management.Data as of August 31,2024.0-0.2-0.3-0.1 0.2 0.1 0.4 0.3 0.5 0.6 0.7 U.S.Europe APAC Globa Transport Timber Macro Global bonds Gl

201、obal equities 48 RENEWING PORTFOLIO RESILIENCE 19 Reconfigured returns Heres a third way to approach portfolio resilience:Consider using tools such as options to change the risk and return profile of underlying assets.This strategy can potentially provide downside preservation while preserving some

202、upside potential.Options can potentially preserve capital,provide niche exposure and generate income.Similarly,active exchange-traded funds(ETFs)can employ option strategies that seek to generate income from an underlying asset class,or to deliver reduced volatility relative to outright equity expos

203、ure.Structured notes can achieve similar outcomes with greater individual specificity.Historically,we have found that equity-linked structured notes have delivered two-thirds of the return of broad equity markets while also and this is key delivering positive returns in down equity markets.Historica

204、lly,equity-linked structured notes have also outperformed preferred equity and high-yield bonds in both up and down markets.We believe investors could consider strategies that reconfigure returns to embed downside protection while maintaining upside exposure in 2025.49 RENEWING PORTFOLIO RESILIENCE

205、20 Gold rallied to new all-time highs in 2024,and we see a strong case for a continued gold rush in 2025.The commodity can play an important role in building resilient portfolios.We expect that gold prices will find continued The gold rush support from central banks,particularly in emerging markets,

206、which have been buying 1,500 tons more gold per year than their pace before Russia invaded Ukraine.The Peoples Bank of China still only holds 5%of its reserves in gold relative to the ECB at 60%and the Federal Reserve(Fed)at 73%.30 Gold ETF inflows were nonexistent in 2024,but new demand from retail

207、 investors,who face declining risk-free interest rates in 2025,could push prices higher.Critically,gold the original safe-haven asset can serve as an attractive hedge against both geopolitical risk and uncertainty around sovereign debt and deficits.In a study of roughly 50 geopolitical events since

208、World War II,we found that gold was a reliable near-term hedge against equity market volatility.31 Finally,we believe the U.S.dollar is structurally overvalued.Gold is an efficient way to diversify currency exposure.GOLD HAS OUTPACED MAJOR CURRENCIES,ESPECIALLY THE YEN Gold price index,100=2021 200

209、180 160 140 120 100 80 JPY EUR USD 21 22 23 24 Source:FactSet.Data as of October 31,2024.30 Attar,H.,&Ademolu-Odeneye,I.(2024).The Next Shift in the Gold Market.Bridgewater.31 Seydl,J.(2024).How do geopolitical shocks impact markets?J.P.Morgan.50 2025 OUTLOOK REPORT Evergreen alternatives Part 05 Sp

210、orts&streamingEvolving The 21st-century space race Liability managementinvestment Reimagined cities landscapes 51 EVOLVING INVESTMENT LANDSCAPES Investment innovation sometimes comes in waves;2025 will be a year of innovation,we believe,as the industry explores new frontiers.While these opportunitie

211、s may not become a core part of your portfolio,you may find small but meaningful additions to your asset holdings.52 EVOLVING INVESTMENT LANDSCAPES 21 Evergreen alternatives One new frontier,open-ended evergreen alternative funds,is rising in popularity.In fact,50%of our alternative commitments in 2

212、024 were in evergreen fund structures,up from 33%in the prior year.While many alternative asset funds have a fixed end date or maturity,open-end evergreen funds(with no fixed end date)have started to take off.Evergreen private credit funds amassed assets in the early 2020s,in part because regulation

213、s constrained banks ability to extend loans.In 2025,we expect evergreen private equity to experience a similar growth trajectory.Today,evergreen private equity is concentrated:Around 75%of current assets under management are invested in the top 20 strategies.But in 2025,we will be partnering with se

214、veral managers to develop strategies we think can deliver differentiated private equity exposure in semi-liquid vehicles.Indeed,there are 50 funds currently in the SEC registration process that are expected to launch in the next several months.32 Evergreen alternatives offer a few key benefits:acces

215、s to private investment strategies at lower minimum investment amounts;the ability to buy into a seasoned investment portfolio;and most importantly,the potential to access liquidity on a periodic(e.g.,monthly or quarterly)cadence.Evergreen funds also offer a simpler approach compared with closed-end

216、 funds.Getting fully invested at the right strategic weight requires only a one-time decision,and your capital can be reinvested to compound over time.At the same time,we note a few caveats.Evergreen strategies tend to have higher fees and lower returns than closed-end funds that“draw down”their cap

217、ital from investors.Importantly,redemption schedules of evergreen funds may be impacted by the occasional illiquidity of their underlying investments.That could be a challenge:Investors tend to want liquidity most during periods of economic and market stress.We think open-ended evergreen and closed-

218、end drawdown strategies can be complementary in a diversified investment portfolio.Investors who prioritize simplicity may emphasize evergreen strategies,while those who focus on absolute return might gravitate more toward traditional drawdown funds.32 Flynn,K.,McCulloch,B.,Hagen,J.,Gaskill,L.,&Beck

219、er,L.(2024).XA Investments Non-Listed CEF Q2 2024 Market Update.XA Investments.53 EVOLVING INVESTMENT LANDSCAPES 22 Sports&streaming Traditionally,owning a sports team had more in common with owning a Rembrandt or a collection of classic cars than it did with owning public and private equities.But a

220、s sports leagues relax their ownership rules,potential sports investors can find new frontiers to explore.The case for investing in sports is simple.First,sporting events are one of the few media experiences that reliably attract significant viewership.No wonder the total value of sports M&A and inv

221、estment has increased by 8x over the past five years,while all public M&A and investment has declined by 40%.33 Second,the barriers to entry remain high for any new sports franchise,a benefit for any existing franchise owner.The number of franchises in the United States is strictly governed by their

222、 respective league rules,and the global hierarchy of leagues seems established.34 54 EVOLVING INVESTMENT LANDSCAPES But sports investing comes with challenges.The leagues most important historical partners,traditional broadcast(terrestrial)television networks,seem to be in inexorable states of decli

223、ne.We would not be surprised to see the traditional media players consolidate,while the tech-enabled streaming services pay increasing premiums to access sports rights.Ultimately,the bull case for sports investing seems likely to prevail.The National Football League(NFL)is also loosening its investm

224、ent rules to allow more institutional capital,and major changes in collegiate athletics will likely necessitate capital solutions.We expect deal activity and equity and credit investment in sports and sports-related assets to outpace other industries.PLAY BALL:SPORTS INVESTING CAN BENEFIT FROM RELAX

225、ED OWNERSHIP RULES Private equity funds planned investment themes eams ollectables Majority ownership in sports franchises*Trading cards,memorabilia,NFTs Minority ownership in sports franchises Apparel layersalent eal state Player performance related services*ports tea and stadiu nancing Sports anal

226、ytics software renas trac s gol courses Sports agencies Arena-adjacent property developments Underwriting player contracts ports adjacent tness ranc ises edia perations Media rights and streaming Venue management(tickets,sponsors,concessions,etc.)ocial edia an engageent Equipment for arena,event ope

227、rations and athletes Media outlets that cater to sports fans Third-party ticketing apps eagues etting Emerging sport leagues Fantasy sports Youth sport academies Betting apps sites Summer camps Live sports books ideo games E-sports(streaming,competitions)Sports video games Sources:Michael Cembalest,

228、J.P.Morgan Asset Management.Data as of 2024.*While majority ownership by private equity funds is not currently permitted in the four largest U.S.sport leagues,some emerging and international leagues permit it.*Includes player training,coaching and development;physical rehabilitation,biomechanics,nut

229、rition,mental strategy,etc.33 Cembalest,M.(2024).A Piece of the Action.J.P.Morgan Asset Management.For more,see our piece on sports investing here.34 National Football League and Premier League,followed by the National Basketball Association,then Major League Baseball,and the National Hockey League,

230、the Womens National Basketball Association,Formula 1 and other European football leagues in some order.55 EVOLVING INVESTMENT LANDSCAPES 23 The 21st century space race The global economy is already reliant on space.Satellites and other positioning,navigation and timing technologies are integral to l

231、ocation and communication services that enable industries from television to food delivery.Innovation from companies such as SpaceX has driven down the cost to launch a satellite by 10 x over the past 20 years,and we expect that satellite enhancements will support more effective communications and o

232、bservation technology.This could be crucial for global connectivity and could enable breakthroughs in data-intensive processes such as automation.Other use cases include imaging to track movements,which could help manage supply chains,predict and respond to natural disasters,and track construction p

233、rojects.Space will also continue to be a focus for sovereign security.The U.S.Department of Defenses budget requests for space-based systems have increased from roughly USD 9 billion in 2019 to more than USD 25 billion in 2025.India landed a spacecraft on the South Pole of the moon.Japan and the Uni

234、ted States are partnering on more accurate positioning technology.Peru,Saudi Arabia and Thailand have all prioritized space in their economic development plans.Space tourism could grow to be a USD 5 billion per year industry in the next 10 years.Consulting firm McKinsey&Co.predicts that the space ec

235、onomy will grow at more than twice the pace of global GDP for the next decade,becoming a USD 2 trillion industry by 2035.35 35 Acket-Goemaere,A.,Brukardt,R.,Klempner,J.,Sierra,A.,&Stokes,B.(2024).Space:The$1.8 trillion opportunity for global economic growth.McKinsey&Company.56 EVOLVING INVESTMENT LA

236、NDSCAPES 24 Liability management Over the last two years,many borrowers have been carrying interest costs that were based on 5%+short-term interest rates.As the market begins to anticipate future policy rate cuts,borrowers can lock in lower rates regardless of whether the rate cuts materialize.At on

237、e point in September,it was possible to fix base SOFR interest costs at 2.90%3.25%for 25 years,given that the markets reflected an aggressive Federal Reserve cutting cycle.Clients can further adjust their borrowing costs using tools such as vanilla and structured interest rate swaps,caps and collars

238、 to lock in or manage toward even lower rates than the market is currently offering.Mortgage activity also reflects dynamic management of market conditions in particular,interest rate expectations.In September,J.P.Morgan Private Bank mortgage purchase applications were at their highest levels since

239、June 2023,and refinance applications were at their highest since the summer of 2022.Some 70%of our mortgage applications were for adjustable-rate loans,the highest share in at least five years.This suggests that borrowers are doing their best to seek out the lowest possible rates,and they expect rat

240、es to fall in the future.We may see other opportunities like this in the year ahead.Whether or not you engage in liability management,as borrowing costs fall,we expect to see an uptick in credit demand from home equity lines of credit(HELOCs),portfolio lines of credit,and mortgage purchases and refi

241、nances.Falling rates also matter for estate planning:Intra-family loan rates are less onerous,as are hurdle rates for grantor retained annuity trusts(vehicles in which asset appreciation above the hurdle rate is passed to the beneficiary free of estate taxes).57 EVOLVING INVESTMENT LANDSCAPES SHIFTI

242、NG EXPECTATIONS OF FED POLICY MOVES CAN CREATE OPPORTUNITIES TO LOCK IN RATES Expected 3-month interest rate implied by SOFR futures,%5.5%5.0%4.5%4.0%3.5%3.0%2.5%3-month SOFR futures:Now 3-month SOFR futures:Mid-September 24 25 26 27 28 29 Source:Bloomberg Finance L.P.Data as of October 23,2024.58 E

243、VOLVING INVESTMENT LANDSCAPES 25 Reimagined cities 59 EVOLVING INVESTMENT LANDSCAPES The physical landscape of cities is shifting.Its a post-pandemic phenomenon with global reach.Even before COVID,cities were changing.In the United States,aging millennials were migrating to more affordable suburban

244、areas.The pandemic and the proliferation of work from home arrangements supercharged the dynamic.Now,new development in many U.S.cities(including Boston,Indianapolis and the Dallas/Fort Worth metro area)features low-rise,garden-style multifamily properties;office buildings in premier suburbs and fri

245、nge urban areas;and redeveloped mix-use retail.Globally,rent growth in urban fringe and suburban fringe markets such as Gangam(Seoul),Fulton Market(Chicago)and Bahnhofsviertel(Frankfurt)has outpaced central business district(CBD)rent growth by 2.5x9x over the past five years.We expect this trend wil

246、l continue.Meanwhile,city governments and investors will increasingly partner to convert lower-quality,older class B and C office buildings to more productive uses(e.g.,housing or even data centers).Over 80%of the office space in cities such as Chicago,Frankfurt and Singapore was built before 2015.T

247、hat said,new construction of LEED(Leadership in Energy and Environmental Design)certified class A office space continues to thrive.Some examples include the Salesforce Tower in Sydney and CapitaSpring in Singapore.J.P.Morgans new headquarters,which is set to open in New York City in the summer of 20

248、25,will be one of the new office towers changing the skylines of cities around the world.OUTSIDE CITIES CENTRAL BUSINESS DISTRICTS,RENT GROWTH IS PICKING UP 5-year rent growth,%0%-5%10%5%20%15%25%30%35%40%Submarket CBD Union Market RiNo Gangnam South End Fulton Bahnhofsviertel(D.C.)(Denver)(Seoul)(C

249、harlotte)Market(Frankfurt)(Chicago)Source:JLL Research.Data as of May 2023.60 2025 OUTLOOK REPORT Conclusion 2024 has turned out to be an exceptional year for investment returns.We are excited to build on that strength with you and your family in 2025.Whether it is capitalizing on the opportunity in

250、 accelerating capital investment,ensuring portfolio resilience through income and real assets or understanding the potential impacts of the recent global election cycle,your J.P.Morgan team is here to help you and your family reach your goals.61 2025 OUTLOOK REPORT AsiaPart 06 Latin America EuropeGl

251、obal perspectives 62 GLOBAL PERSPECTIVES Asia 63 GLOBAL PERSPECTIVES How to find opportunities in emerging markets Emerging markets have disappointed investors for years.Despite promises of high growth and high returns,in aggregate,emerging market(EM)equities remain among the worst-performing asset

252、classes over the last 15 years.Investor expectations of strong economic growth were largely met:On average,EM economies grew 4.3%compared with a 1.7%rate for their developed market(DM)peers.But in many markets,equity returns have not followed suit.Why has growth in some countries spurred positive eq

253、uity returns while in others it hasnt?As we discuss here,the critical nexus is between economic growth and corporate profits.Ultimately for investors,its profits(and profit growth)that matter,so the key question is what factors allow economic growth to translate into corporate profits.With the Feder

254、al Reserve(Fed)cutting rates and China engaging in a new round of stimulus,the outlook for emerging markets is improving.But investors need to be attentive to the dynamics of particular economies and markets,and quite selective in determining where and how to invest across the EM spectrum.Note that

255、this view is focused on long-term investing.Short-term tactical opportunities in Chinese markets this year,for example can come and go based on other factors.ECONOMIC GROWTH DOESNT ALWAYS EQUATE TO RETURNS IN EMERGING MARKETS Annualized nominal GDP growth vs.local equity index price returns since 20

256、09,local currency,%12%10%8%6%4%2%0%-2%Nominal GDP Equity returns Japan United States BrazilChina Onshore Hong KongIndiaIndonesia Malaysia MexicoSingaporeSouth AfricaKorea TaiwanSaudi Arabia(Dubai)U.A.ESources:National sources,MSCI,Bloomberg Finance L.P.Data as of September 30,2024.64 GLOBAL PERSPECT

257、IVES What moves equity markets What drives equity returns?Investors are rewarded when companies grow their profits per share or return capital through dividends.In general,equities movement follows profits(earnings)over the long run.When earnings grow,equity prices tend to rise.However,this is where

258、 EM equities have lagged their DM counterparts.While economic growth has been strong across a number of countries,many domestic companies have not seen their profits grow.One of the most glaring examples is China,where earnings have been flat over the past 10 years despite strong economic growth(see

259、 chart).Three factors explain the relatively weak earnings growth,in our view.First,economic models vary regarding the respective roles of the public and private sectors.Some countries do well in generating output building infrastructure or growing export volumes but their models are not conducive t

260、o generating corporate profits.For example,an economy might include hefty government subsidies that increase uneconomic competition and drive down prices.A similar dynamic results in economies that include many state-owned enterprises(SOEs)that are not as profit-motivated.The second factor is corpor

261、ate governance.Even successful companies that deliver strong revenues dont necessarily create profits.And importantly,they might not create profits on a per-share basis.Companies may generate significant revenues but spend those earnings,for example,on wasteful investment or paying management higher

262、 salaries.GLOBAL PERSPECTIVES CHINESE STOCKS HAVE NOT KEPT PACE WITH ECONOMIC GROWTH China nominal GDP and MSCI China Index and earnings,2010=100 350 China GDP MSCI China earnings MSCI China Index 300 250 200 150 100 50 0 06 08 10 12 14 16 18 20 22 24 Sources:National Bureau of Statistics of China,M

263、SCI,Haver Analytics,Bloomberg Finance L.P.Data as of Q3 2024.More frequently,companies are profitable,but they take“shareholder-unfriendly”actions issuing more shares,for example,and thus diluting shareholder value.Because earnings are measured on a per-share basis,if share issuance increases in lin

264、e with profits,earnings per share(EPS)never grow.The third factor is more macro and relates to the role of exports in a particular EM economy,and for emerging markets overall.Although domestic consumption has grown among EM economies,exports remain the most influential determinant for corporate prof

265、its.Thus,its no surprise that emerging markets had their heyday in the mid-2000s when global trade growth was skyrocketing amid hyper-globalization.With trade broadly under pressure from rising protectionism and shifting supply chains,finding economies that are still able to grow exports in this env

266、ironment becomes an important factor.66 GLOBAL PERSPECTIVES A three-factor framework for EM investing How can investors find opportunities in the current environment?We think the Venn diagram offers a useful framework.Look at the economies that fit in the center of the Venn diagram:a combination of

267、thriving private sectors with minimal governmental interference,companies that value shareholders and grow earnings,and growing exports.Admittedly,few economies fit the bill.And thats precisely why investors need to be especially selective when investing in emerging markets.Looking at the first fact

268、or,economic structure,the private sector has become the key growth driver in many economies,with increased competitiveness spurring an improved corporate performance.Examples include markets with a small share of SOEs,such as India,Indonesia,Taiwan,Korea,South Africa and Trkiye.SELECTIVITY IS IMPORT

269、ANT WHEN INVESTING IN EMERGING MARKETS A framework for emerging markets investing conomies ith largepri ate sector conomies herecompanies generatehigh earnings per share conomies ith strong andgroing e port industries Korea Philippines Thailand Malaysia China Saudi Arabia U.A.E.Trkiye Brazil South A

270、frica India Indonesia Taiwan Mexico Vietnam Source:J.P.Morgan Wealth Management.67 Trkiye Brazil South Africa India Indonesia Taiwan Mexico Vietnam India Indonesia Taiwan Mexico Vietnam GLOBAL PERSPECTIVES CERTAIN POCKETS OF EMERGING MARKETS HAVE GROWN PROFITS AT AN IMPRESSIVE RATE Earnings growth b

271、y region,local currency,September 2009September 2024,%296%0%50%100%150%200%300%250%36%48%86%110%226%263%267%EmergingMarkets ChinaO s ore ChinaOnshoreKorea TaiwanUnited States BrazilIndia Source:Bloomberg Finance L.P.Data as of September 30,2024.Note:Emerging Markets denoted by MSCI Emerging Markets,

272、China Offshore by MSCI China,China Onshore by CSI 300,Korea by KOSPI,Taiwan by Taiex,United States by S&P 500,Brazil by Bovespa,and India by SENSEX Index.When we consider the second factor,corporate governance and more specifically whether companies create shareholder value India,Brazil,Indonesia,Ta

273、iwan and the United Arab Emirates generate returns either through profit or dividend growth,and importantly,they tend not to dilute shareholder value.In these countries,companies generally focus on enhancing profits and returning that value to shareholders;not coincidentally,their companies tend to

274、grow earnings per share at a good clip.Turning to the third factor,the role of exports,China is the clear standout.Exceptional export performance in recent years has pushed Chinas global market share up to 15%of all global exports.From an investors perspective,the surge in Chinese exports is related

275、 to the role of Chinas government in promoting exports.An economy with large government subsidies and stimulus efforts directed at increasing supply may not be a conducive backdrop for profit margins and earnings growth.We note,too,that Chinas export power challenges many other emerging markets.Chin

276、as burgeoning trade surplus and export growth in both low-tech and high-tech products are putting pressure on other global manufacturers.Recent reporting showing Korea running a trade deficit with China in kimchi highlights the scale of the challenge for emerging markets ex-China.Nonetheless,economi

277、es such as Vietnam,India,Taiwan,Poland and Trkiye have all been able to gain export market share.So where should investors turn in the search for that elusive combination of high growth and high stock returns?In our three-factor framework,India,Indonesia,Taiwan and Mexico stand out as the most promi

278、sing hunting grounds for equity investors.The EM Index may disappoint.But investors who pick their spots,and their stocks,have the potential to realize attractive returns.68 GLOBAL PERSPECTIVES Latin America Politics and monetary policy:A cautionary tale When the Fed launched its long-awaited first

279、rate cut a few months ago,a global rate-cutting cycle hit its stride.How might the cycle play out?To answer that question,we can look to Latin American monetary policy as a kind of case study.In some ways,its a comforting story.Economic growth in much of Latin America remains strong,and inflation is

280、 contained.But in other ways,its a cautionary tale.Politics and policy are key here.How monetary policy and fiscal policy interact will be especially relevant as many countries move toward“fiscal activism,”increased government spending and investment.As investors consider the impact of this rate-cut

281、ting cycle on economies and markets,the Latin American story can offer useful lessons.69 GLOBAL PERSPECTIVES Hyperinflation and the lessons of history Latin America famously struggled with hyperinflation from the 1970s until the mid-1990s,when central banks played a pivotal role in reining it in.Pri

282、vatizing state-owned industries,liberalizing trade and imposing austerity measures were also important.But the establishment of clear and predictable monetary policies,independent of executive power,proved decisive.Chile led the way by granting autonomy to its central bank in 1989.Many other countri

283、es followed suit through the 1990s.Brazil,the regions biggest economy,made its central bank independent in 2021.Conversely,countries that have undermined central bank independence,such as Argentina and Venezuela,continue to struggle to keep inflation under control.LEGAL REFORMS USHERED IN GREATER AU

284、TONOMY FOR LATIN AMERICAN CENTRAL BANKS Central bank independence in Latin America before and after legal reforms,selected countries ountry Bolivia Chile Costa Rica Honduras e orm ear 1995 1989 1995 1997 re re orm 0.3 0.1 0.44 0.36 ost re orm 0.8 0.82 0.73 0.67 ountry Nicaragua Peru Venezuela Europe

285、an Union e orm ear 1992 1992 1992 *re re orm 0.45 0.43 0.43 ost re orm 0.7 0.8 0.73 0.86 Source:World Bank.Data as of 2017.Note:The index of central bank independence is based on the legal provisions of central bank laws and related legislation.The overall value of the index fluctuates on a continuo

286、us scale from zero to one,with higher values indicating stronger legal central bank independence.Countries where subsequent legislation has reverted these reforms to some extent are marked with an asterisk.*Brazils CB effectively became independent in 2021,but there is no updated score.*In the Unite

287、d States and the European Union,there have been no specific reforms to change the score.70 Argentina 1992 0.4 0.8 Mexico 1993 0.39 0.64 Brazil 2021 0.25*Paraguay 1995 0.38 0.62 Colombia 1992 0.27 0.69 Uruguay 1995 0.18 0.71 Dominican Republic 2002 0.37 0.65 United States 0.48*GLOBAL PERSPECTIVES Pol

288、icy after the global financial crisis and COVID The past 15 years were a time of monetary policy challenges,but of a different sort.The global financial crisis(GFC)upended traditional notions of what central banks could and couldnt do.To stabilize the financial system,the Fed and other central banks

289、 took unprecedented actions,including zero interest rates and quantitative easing(purchasing government securities and other financial assets for the central bank balance sheet).This“monetary activism”provided stability,but in hindsight,its clear that it also boosted risk asset prices.Essentially,wi

290、th cash rates close to zero,investors looking for yield and return had to seek,and as a result bid up,assets with more risk.During this period,central banks in Latin America cut policy rates by over 500 basis points(basis points)from 3Q08 to 4Q09.They also lowered reserve requirements and took other

291、 actions to boost liquidity,including providing USD liquidity in FX markets to alleviate short-term volatility in local currencies.The COVID shock sparked renewed monetary activism from many developed economy central banks.Latin American central banks,for their part,stuck with more traditional monet

292、ary policy.Faced with the threat of relentless inflation,they raised rates more swiftly and forcefully than other major central banks.71 GLOBAL PERSPECTIVES LATIN AMERICAN CENTRAL BANKS WRESTLED POST-COVID INFLATION UNDER CONTROL MORE QUICKLY THAN MANY OF THEIR GLOBAL PEERS Inflation rate,%2020 8.0%

293、1.0%3.5%7.8%4.6%1.9%3.5%5.8%2021 2022 2023 Latin America&Caribbean World Source:International Monetary Fund.Data as of December 31,2023.DURING COVID,LATIN AMERICAN CENTRAL BANKS RAISED RATES MORE SWIFTLY THAN OTHER MAJOR CENTRAL BANKS Central bank policy rates,%16%14%12%U.S.Mexico Brazil Chile Colom

294、biaEU 19 20 21 22 23 24 Brazil starts hiking June 2021 Brazil pauses August 2022 Brazil starts cuttingAugust 2023 10%8%6%4%2%0%-2%Source:Bloomberg Finance L.P.Data as of November 7,2024.Two paths to inflation control As a result,Latin American central banks wrestled post-COVID inflation under contro

295、l more quickly than many of their global peers.By the time the Fed began hiking rates in March 2022,Latin Americas major central banks had already hiked rates an average of 525 bps.When the Fed paused its hiking in September 2023,both Brazil and Chile were already easing.The significant real rate di

296、fferential versus the United States allowed major Latin American currencies to appreciate considerably.This was particularly true for the Mexican peso(MXN),which also benefited from supportive macroeconomic fundamentals(solid growth,contained inflation,manageable fiscal and current account deficits)

297、.GLOBAL PERSPECTIVES Political pressure,economic instability By any measure,Latin Americas monetary policy was a success.Yet we learn(and not for the first time)that price stability and prudent monetary policy cannot guarantee economic stability.This is especially true as economies become more open

298、to foreign capital flows and politics drives fiscal policy.Political rhetoric can easily undermine central banks credibility.Electorally driven fiscal expansion often undercuts otherwise effective monetary policy.A few examples:In Brazil,President Luiz Incio Lula da Silvas direct attacks on the cent

299、ral bank,coupled with the governments low credibility regarding fiscal targets,have led to higher inflation expectations.As a result,even as inflation is a relatively modest 4.4%,Brazils central bank(COPOM)has restarted the tightening cycle.It has raised rates by 75 basis points,with 50 basis points

300、 more in hikes expected by year-end,as the central bank looks to rein in inflation expectations.Elsewhere in the region,politics has pressured both price stability and economic growth.Colombia faces one of the highest fiscal deficits in the region,and President Gustavo Petros reform agenda exacerbat

301、es the problem by undermining private investments and investment certainty.In Mexico,former President Andrs Manuel Lopez Obrador leveraged the Morena Partys overwhelming electoral victory to push forward a radical reform agenda,raising questions about the governments commitment to attracting private

302、 investments amid global supply chain relocation.The onus is now on President Claudia Sheinbaum to reel in a rampant fiscal deficit and rebuild the undermined credibility of Mexicos rule of law.From their post-COVID lows,the currencies of Brazil,Colombia and Mexico have depreciated by an average of

303、16%,and sovereign spreads have widened an average of 31 basis points.At the same time,equity markets have gained,on average,“only”31%in local currency terms(versus a 67%gain in U.S.markets).As these examples illustrate,political risk has the potential to jeopardize economic stability.In our view,inv

304、estors in Latin American markets may want to leverage strong long-term trends such as nearshoring but right-size investments to mitigate the risk of volatility.73 GLOBAL PERSPECTIVES Conclusion As the Fed and other central banks continue their easing cycles,the Latin American experience serves as a

305、cautionary tale.Traditional monetary policy especially early rate hikes proved effective in controlling post-COVID inflation.But more recently,political pressures have threatened that legacy.This is a lesson for policymakers everywhere.74 GLOBAL PERSPECTIVES Europe 75 GLOBAL PERSPECTIVES Not all AI

306、profit is American:Unlocking Europes growth potential The global industrial cycle has been in a downturn for the better part of two-plus years.Its akin to long COVID:Pandemic-era supply chain disruption has been hard to shake off.European companies face challenges on a number of fronts,including lab

307、or markets,competition and productivity.Few sectors have struggled more than European manufacturing.But look more closely and the outlook is brighter.We believe 2025 will be the year of capital investment by governments and businesses,as policymakers focus on supporting economic growth and CEOs see

308、opportunities to profitably deploy their capital.This is a key theme in our Outlook.So even as traditional manufacturing has been slowing,innovative and profitable European industrial companies are well positioned to benefit from increasing capital investment in four key areas:The AI value chain Inf

309、rastructure Aerospace Defense We think clients can find compelling opportunities investing in these themes via European companies.In a well-diversified portfolio,the holdings could also complement U.S.-based tech stocks,which have grown into large overweights in many client portfolios,along with a h

310、igher exposure to the U.S.dollar.We think USD is structurally overvalued,which strengthens the argument for owning non-U.S.assets.In addition,European companies may benefit from the stimulus and support measures that China implemented recently.If China continues with this approach in the months and

311、quarters to come,it could boost revenues for the European firms that are key trading partners.Indeed,after the United States,China is Europes second-largest trading partner.76 GLOBAL PERSPECTIVES Powering through a difficult macro backdrop We recognize the recent challenging macro backdrop.Since the

312、 GFC,the Eurozone has slipped behind the United States in multiple respects.The European manufacturing Purchasing Manager Index(PMI)has been below the key 50 threshold consistently since mid-2022.PMIs in Germany,Europes traditional industrial powerhouse and some 25%of the Eurozone economy,have been

313、hovering in the low 40s,an anemic showing relative to its recent past.36 For Europes energy-intensive industries,challenges in procuring energy and burdensome government regulation further complicate the picture.European policymakers recognize the need for a more competitive economy.Former European

314、Central Bank President Mario Draghis recently published report,essentially a blueprint to help the Eurozone“reignite growth,”offers some thoughtful initiatives.We hope that some may be adopted over time.Translating words into action,the European Commission has committed to investing EUR 20 billion p

315、er year in AI by 2030 to ensure Europe remains competitive in this important area.37 This is a step in the right direction,we believe.While headline GDP growth is weak in Europe,especially in the industrial sector,we think structural drivers forces driving durable,non-cyclical growth can“power throu

316、gh”the macroeconomic challenges.Sectors,notably European industrials,that support structural drivers in AI,aerospace,infrastructure and defense will likely grow much faster than the euro area economy overall.36 Sources:HCOB,Bloomberg Finance L.P.Data as of October 2024.37 Source:European Commission.

317、Data as of December 31,2023.77 GLOBAL PERSPECTIVES The AI value chain The world will move forward with an ever-increasing adoption of AI,we believe.In the AI ecosystem,which includes semiconductor manufacturers and makers of large language models,European companies supply critical inputs.In other wo

318、rds,these firms are part of the AI value chain.They are providing electrification(AI data centers have a near insatiable demand for power),renewable energy technologies,precision machinery and engineering expertise.Consider:By the end of the decade,the global energy transition may require an additio

319、nal USD 12 trillion in annual capital expenditure.AI could drive a tenfold increase in power consumption over the next three years.Meeting that skyrocketing demand will require ongoing innovation,and European energy companies are already working to provide it.In the real estate sector,European compa

320、nies are using AI to enhance energy efficiency and sustainability in buildings through“smart energy”management systems.The global smart building market is expected to grow from USD 80.25 billion in 2022 to USD 205.3 billion by 2031.78 GLOBAL PERSPECTIVES SPENDING ON DATA CENTERS IS EXPECTED TO DOUBL

321、E IN THE NEXT FIVE YEARS Global data center capital expenditure,$billion Sources:J.P.Morgan Wealth Management,Bloomberg Finance L.P.Data as of Q2 2024.14 CAGR+13%CAGR+11.9%CAGR+9.6%15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Enterprise Co-location companies Hyperscalers 200 100 0 300 400 500 600

322、 131 142 140 148 181 187 194 214 251 260 296 353 426 517 587Server&storage Other DC hardware HVAC*&physical infrastructure AI DATA CENTERS HAVE A NEAR INSATIABLE DEMAND FOR POWER Data center power consumption by provider,gigawatts CAGR+8.7%35 30 25 20 15 10 5 0 14 15 16 17 18 19 20 21 22 23 24 25 26

323、 27 28(E)(E)(E)(E)(E)Sources:DellOro,J.P.Morgan estimate.*HVAC stands for heating,ventilation and air conditioning.Data as of March 2024.79 GLOBAL PERSPECTIVES PRIVATE INFRASTRUCTURE AND REAL ASSETS HAVE HISTORICALLY OFFERED UNCORRELATED RETURNS Public and private market correlations,quarterly retur

324、ns(Q2 2008Q1 2024),%U.S.Europe APAC Global Core EquityGlobal Global Direct Venture Private Relative Core Core Core Infra-Transport Timber Long/MacroBonds Equities Lending Capital Equity ValueReal Estate Real Estate Real Estate structure Short 0.0-0.1 0.3 0.3 1.00.0 0.8 0.7-0.2 Global Bonds Global Eq

325、uities 1.0 U.S.Core Real Estate Europe Core Real Estate APAC Core Real Estate Global Core Infrastructure Transport Timber Direct Lending Venture Capital Private Equity Equity Long/Short Relative Value Macro 1.0 1.0 1.0 0.5 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 0.4-0.3-0.2-0.1-0.2-0.2 0.0 0.1 0.3 0.3 0

326、.2 0.0 0.0 0.0 0.1-0.1-0.2 0.7 0.5 0.8 0.9 0.9 0.3 0.7 0.4 0.4 0.3 0.2 0.3 0.3-0.1-0.1 0.0 0.3 0.2 0.1 0.3 0.2 0.5 0.4 0.3 0.0 0.1 0.1-0.1-0.1 0.2 0.3 0.20.3 0.2 0.1 0.1 0.0 0.1 0.0 0.0-0.1-0.1-0.1-0.2 0.0-0.1-0.1 0.0 0.5 0.8 0.7 0.1 0.8 0.6 0.5 0.2 0.8 0.8 0.2 0.9 0.3 0.3 Financial assets Global re

327、al estate Real assets Private markets Hedge funds Low correlation High correlation -0.2-0.2 0.9 Sources:J.P.Morgan Asset Management,Bloomberg Finance L.P.,Burgiss,Cliffwater,FTSE,HFRI,MSCI,NCREIF.Note:Green=low correlation.80 GLOBAL PERSPECTIVES Infrastructure Increasingly,governments and companies

328、are focusing on investing in and modernizing infrastructure,including electricity transmission and distribution facilities,energy systems and utilities.In the transportation sector,AI and electrification can optimize port operations,reduce congestion and improve logistics.European companies are play

329、ers on multiple fronts,with an especially important role in the energy transition.81 GLOBAL PERSPECTIVES Aerospace European firms are also leading names in an aerospace sector that may soon be transformed by electrification and AI.For example,AI-driven predictive maintenance can reduce downtime and

330、operating costs.AI can improve safety by analyzing vast amounts of data to predict and help prevent potential failures.Many aging fleets have a substantial need for ongoing upkeep and replacement.A strong aftermarket looks likely to continue,alongside a demand for newer,more advanced and more energy

331、-efficient planes.Defense Amid rising geopolitical risks,members of the North Atlantic Treaty Organization(NATO)are spending more on defense.Indeed,of the EU members of NATO,16 of the 23 are currently on track to surpass the 2%of GDP threshold in 2024,up to a cumulative total of EUR 360 billion.Ten

332、years ago,the average member was only at 1.2%of GDP.We expect the uptrend to continue,with substantial expenditures to defense,aerospace,technology and logistics firms,among others.Aerospace and AI are essential to these plans,and European industrial partners will likely feature in these investments

333、.The main areas of investment include modernization of equipment,cybersecurity and infrastructure.In national defense as in any global industry allocating resources to diverse suppliers can spread risk and increase resilience.Investing in businesses aligned with the defense theme looks promising.82 GLOBAL PERSPECTIVES Portfolio How might these four themes fit in your portfolio?strategy Growing cap