We see three themes shaping sector returns in the coming decade. Artificial intelligence (AI) will support the Information Technology (IT) sector followed by Healthcare, but it is due to extend to others as well. Regarding climate change and geopolitical dynamics, capital expenditure (Capex) will play a more important role than consumption, benefitting Industrials more than the Consumer Staples and Discretionary sectors. Finally, policies supporting deregulation should improve capital efficiency and shareholder returns, to the benefit of Financials. Sector assessment is also important in assessing regional opportunities, as the sector composition of equity markets differs from the sector composition of the economy.

Artificial Intelligence

The democratisation of AI and the rotation from ‘hyperscalers’ to ‘enablers’, particularly in the Software sector, is expected to boost global productivity and equity in the long run. Not all ‘Magnificent 7’ sectors are at the top of our rankings. While IT remains a strong candidate, it is expensive in the US but supported by climate change initiatives and ESG scores, and is more affordable in EM. It should also deliver better returns than Communication Services and Consumer Discretionary. As AI’s benefits expand, other sectors like Healthcare are poised to benefit.  

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