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What will the world be like in 2021? UBS offers a glimpse

Researchers at the bank's wealth management unit see a few surprises ahead

Like other reporters, I’m a sucker for a seer.
Give me a market strategist, portfolio manager or any other prognosticator who doesn’t line his hat with CIA-deflecting aluminum foil, and I’ll produce a story about tomorrow’s market.
Lured by a peek into the future — plus hot coffee and warm eggs on a frigid New York morning — I joined other financial scribblers at UBS headquarters this week to hear from the firm’s chief investment strategist and its head of thematic research.
The two, Mike Ryan and Kurt Reiman, who are part of the firm’s Wealth Management Research-Americas unit, explained where the markets will take us over the decade ahead. For a sober, serious Swiss bank to go out on a 10-year limb… well you gotta give ‘em credit for brass, not just gold.
Seriously, though, the UBS view of where the world economy and financial markets are headed is thorough and only moderately optimistic. (Like equity ratings from investment banks, where “buy” means “eh” and “market neutral” means “dump the dog,” you have to recalibrate bank enthusiasm to get an accurate reading; in this case, moderate optimism is pretty evenhanded).
While UBS’ 6,796 financial advisers got the full story, here are the highlights:
> The U.S. will remain the dominant power in the world — despite the need for fiscal, regulatory and educational reform. We’ll slip in terms of relative strength, but still be a leader.
> China will increasingly challenge the U.S. for economic leadership.
> Geopolitical conflict likely will keep risk premiums elevated for all financial investments.
> More assets will shift to emerging markets.
> Consumers will become more important in emerging markets, as the emphasis shifts from production to consumption.
> High oil prices will encourage investments in alternatives.
> Inflation will return, but not at 1970s levels.
> Stock returns will be more “normal.”
> Bond yields will average about 5% during the decade.
> People will increasingly judge philanthropy on results.
When the formal presentation was over and the moderator asked for questions from the floor, no hands went up. What the heck, I thought, let me stick my neck out.
“If we had been sitting here in February 2001,” I began, “it would have seemed crazy to predict 9/11, a ‘go-nowhere’ decade for the stock market and a financial meltdown. Since crazy things have a way of happening, what ‘black swan’ events worry you most about the next 10 years?”
Mr. Ryan, UBS’ chief investment strategist, said that threats to wider globalization could derail the firm’s fairly sanguine forecast, as could the inability of the world’s elected leaders to deal with their nations’ structural problems.
He also acknowledged the possibility of a really crazy event occurring, like some nut setting off a bomb.
While the future always seems to surprise us with an unexpected wrinkle or two, Mr. Ryan’s willingness to acknowledge that total irrationality could derail his forecasts increased the UBS report’s credibility in my eyes. To find out if it was accurate, check back here in February 2021.