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Cash-equity line

* Unhedged Value

About Forecaster

The Forecaster tool allows investors to select a combination of assets, currencies and time horizons of interest for comparison on a risk-return chart. These forecasts are produced by the Multi-Asset Solutions’ Research team at abrdn. We aim to update the forecasts on a semi-annual basis, with the current numbers correct as of June 2023.

Return projections are estimates and provide no guarantee of future results.

For institutional, professional, qualified/wholesale investors only. Not for retail clients.


Regional outlook

2023 has seen a continuation of 2022’s regional divergence, which saw Emerging Markets underperforming Developed Markets, largely attributed to the Fed’s rapid hiking cycle, but also to the ongoing Covid lockdowns, regulatory clampdowns and property crises in China, to name but a few. Whilst this trend remains in 2023, so far the performance has been more positive as recessionary fears have waned amidst strong economic activity reports despite significant interest rate rises; this scenario has been described as a “soft-landing”.

There have also been several thematics that moved markets. US markets enjoyed returns north of 15% in the first half of the year, with almost half of it attributable to just three names; Apple, Microsoft, and Nvidia. Whilst AI has hit headlines in recent months, with ChatGPT being the most recent manifestation, the actual extent of their applications and developments has progressed significantly. Nvidia has nearly tripled in price so far in 2023, primarily because the chips it makes are viewed as those best suited to training AI models, the likes of which are used in ChatGPT.

Our equity return modelling, as outlined previously, focusses on the assessment of fair value. Given such a strong price appreciation this year, we believe the prospective returns have been depleted strongly and therefore forecast just 4.4% total returns p.a. for the US. This comes despite our forecasts of a fairly rapid decline in interest rates over our forecasting horizon.

In 2022 the UK market proved much more resilient to rate hikes than other regions given its large exposure to “value” securities. So far in 2023 we have seen a reversal in style preference to “growth” names, which has not been particularly positive for the UK market. Furthermore, the UK is a market that has one of the smallest proportions of its revenues generated domestically (less than 30%), so the strengthening in sterling has further dampened the markets returns as corporates exchange foreign revenues into their domestic currency. Moving now to our expected returns, we see returns at +6.3% p.a.. We believe this is justified given the persistence with which the market has traded at depressed valuation multiples, but would caution that this comes with a moderate equity risk premium of 4.5%, in our view acknowledging the elevated political instability, ongoing Brexit risk, and also elevated recession risk.

The soft-landing rhetoric can produce positive performance for sectors that benefit in times of economic strength. Areas such as Consumer Discretionary (which contains luxury items, often falling out of favour when recession fears grow), and Industrials (which are pro-cyclical in nature) helped the European market prices gain 10.5% in the first half-of the year, which in our view has detracted from prospective returns.

Japanese equities had a strong start to the year. Just over 35% of the revenues generated by companies in the MSCI Japan index are generated overseas, meaning currency fluctuations can significantly influence corporate earnings. So far this year, the Yen has depreciated c. 10% versus the dollar amidst the return to risk seen in markets, which helped to boost the markets price appreciation. Additionally, moderate inflation in the region has not been met with rate rises, as it has in other markets, given the Bank of Japan’s strict yield-curve control policies; this further helped the market post returns in excess of 20% year-to-date. However, expectations of changes to Japan’s Yield-Curve controls are, in our view, likely to increase interest rates and therefore reduce value in equity markets moving forwards. Add to this our continued sluggish nominal-GDP growth forecasts alongside the continued corporate deleveraging, the market continues to be our least favoured market at just 3.6% p.a..

One driver of our large China and EM forecasts are the updates to real policy rates in the regions, a combination of COVID induced lowered trend growth rate and the continued anchoring of global rates. We would, however, caution that we assign the highest risk premiums to both of these regions, at 4.7 and 5.0% respectively, acknowledging the structural headwinds facing the regions. These focus in particular around the geo-political tensions, de-globalisation trends and the recent Chinese property crisis.

It’s worth noting that on an excess return basis, with US cash rates at c. 3.8% and global equity returns of c.5.5%, this implies an equity risk-premium of just under 2%, well below the 4-6% investors tend to expect. This suggests that whilst the total returns may look attractive, investors must consider the excess returns that assets will contribute to the overall portfolio, especially on a risk-adjusted basis, where fixed income and alternatives may be more attractive.

In the “Back to New Normal” paradigm, we expect valuation multiples to revert to near their historic averages using 20+ years of data; this reflects an environment with subdued inflation, low interest rates, moderate real GDP growth, and muted risk-premia, one in which we expect equities to perform well. However, net of our probability assumptions, the ”Weighted” valuations are more subdued. We therefore encourage investors to consider carefully their own expectations regarding economic equilibria, and would caution against the seemingly strong total return figures presented here.

Finally, our climate scenario work has not been updated since our previous edition. This reflects the lack of updates from the Network for Greening the Financial System, who specify the foundation for many of the scenarios we use in our work. We continue to track the latest policy developments and overlay our assessment of the most likely climate transition pathway.


Cash-equity line

* Unhedged Value


The cash-equity line serves to illustrate risk-adjusted relative performance. Assets above the line are expected to outperform a portfolio of equivalent risk containing only cash and equities; assets below are expected to underperform.

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