In developed economy elections around the world in 2024—from France to the United Kingdom to Japan to the United States—voters demanded change, as the lingering squeeze from prior years’ inflation ignited a desire to punish incumbents. In each country, the circumstances beyond inflation differ and the policy consequences will diverge. But change is in the air, with meaningful economic and market implications across each major economy.

This is an analysis of the forces that are most likely to impact markets in this unusually uncertain year.

In the United States, significant policy changes could materially affect global growth, US inflation, and corporate profitability.

China will be at the center of the storm and is likely to respond to US protectionism with asymmetrical retaliatory measures and substantial fiscal and monetary stimulus.

The Eurozone is likely to be tested by US trade policy, fiscal pressure from higher defense spending, and the potential security threat from an emboldened Russia.

Japan will struggle to balance the benefits of positive inflation against voter anger over cost-of-living increases and the desire to stabilize the yen.

The geopolitical backdrop is likely to shift meaningfully as the United States retrenches from multilateralism and diminishes its commitments to mutual defense treaty partners.

The changing global backdrop could significantly affect prices across asset classes, with elevated dispersion within them. Investors will therefore need to reevaluate likely winners and losers across countries, sectors, and companies.

Investment implications

The biggest challenge from a market perspective lies in quantifying the independent effects of potential policy changes and then attempting to understand how these countervailing impacts will interact.

For example, economists can estimate the inflationary and growth impacts of increased tariffs, but even these estimates are subject to large error bands.

Several questions remain unanswered: When will tariffs be applied? Will they be applied all at once, or gradually over time? Which items will they be applied to? Will they be applied uniformly? If not, what will the nuances be?

Predicting the customer responses to policy changes is also imprecise. For example, if one million undocumented immigrants were deported in 2025, what might that mean to wage growth by sector? How will compensation increases resulting from deportations affect broader price levels? Even more difficult to forecast is the impact of broad price-level increases on wage demands in sectors that are not directly impacted by deportations.

Finally, there is the complexity of measuring the impact that deregulation and lower tax rates could have on the “animal spirits,” or psychology of all market participants.

With that cautionary note in mind, my base case expectation is that inflation will increase moderately in 2025 due to tariffs and modest increases in consumption driven by wealth effects and optimism around perceptions of a more growth-oriented economic agenda.

In 2026, I expect further increases in inflationary pressure as immigration policies and tariffs accumulate. With this backdrop, I see the US 10-Year Treasury yield moving back toward 5% and the fed funds rate staying at or above 4%.

While it might be tempting for investors to extend duration in their portfolios if the 10-year Treasury reaches a 5% yield again, I would caution against any excessive reallocation. This is because the shifting policy backdrop could lead to a sustained grind higher in US government financing costs as key policy changes reignite inflation and budget deficits remain elevated.

To the extent Fed independence is also called into question against a backdrop of elevated inflation and deficits, rates could rise sharply.

With trade and immigration policy depressing growth and raising inflation, while deregulation and tax policy increase corporate profitability, I would expect credit spreads to remain tight as recession risk appears low.

However, if I am wrong, the accumulated uncertainty created by so much change and an escalating global trade war could at some point negatively impact investor psychology, leading to wider credit spreads and perceptions of increased recession risk. Put simply, my preference remains to be more exposed to intermediate-duration and higher-quality borrowers rather than reaching for yield in riskier areas, such as the high yield market or leveraged loans, given the outsized risk of an unexpected downturn.

For US equities, the initial response to the US election was positive as investors focused on the obvious tailwinds to profitability: lower corporate tax rates and less regulation. However, I expect much more dispersion within the equity market when the reality of a much-less-friendly trade environment sets in. Some companies, such as those in the financial services and energy sectors, will be less vulnerable to tariffs while others, such as those in the consumer discretionary arena, will be much more

In the immediate aftermath of the US election, non-US equities initially underperformed US peers. However, 2025 could present an excellent opportunity to add capital in non-US markets as investors recalibrate assumptions regarding the relative winners and losers from the reshaping of global supply chains against an evolving geopolitical backdrop.

In three of the last five quarters, foreign direct investment into China has been negative, and I expect to see more capital being redirected away from China in the years ahead.

Looking beyond geography, I continue to believe the two most transformational economic themes in our lifetimes will be the advent of artificial intelligence (AI) and the energy transition. Investors are fully engaged in the AI trade but are increasingly discarding shares related to clean energy.

I believe a great investment opportunity could be in the making, as climate change continues unabated and the profit opportunity from investing in both mitigation and adaptation grows. In the case of AI, the most attractive near-term opportunity might still be in the market leaders, but I believe it will increasingly shift to the companies that effectively deploy AI into their operations in a way that generates meaningful returns on investment.

By Ronald Temple, chief markets strategist, Lazard

These are the headline results of the sixth annual AILO Global Cross-border Life Market report. There are a number of key factors that influenced the 2023 result:

The Impact of Higher Interest Rates

Higher interest rates in the face of stubborn inflation provided a timely boost to the sale of life insurance savings and protection products globally in 2023. However, as the recent AILO Regular Premium Product Survey has highlighted, such products now only account for roughly 5% of AILO Member new business activity, so many cross-border life companies were not best placed to take advantage of these economic circumstances in 2023.

For cross-border life companies with a focus on investment-linked business, higher interest rates had the effect of increasing the risk-free rate for many investors, influencing them away from equity-linked investment solutions at a time when cash deposits were often producing annual returns of 5% or more. Whilst this was not the sole priority for many high value cross-border life customers, anecdotal evidence suggests that the risk-free rate had a significant impact on smaller investors and raised the threshold at which cross-border products were being recommended.

The Dominance of Europe as a Region

The Europe ex-UK region regularly accounts for around two-thirds of all the global cross-border new life business. As a result, any significant changes impacting this region will have a disproportionate effect on the overall global result.

In 2023, the global market was down 16% on 2022, and new premiums in the Europe ex-UK region declined by 20%, with the region being responsible for an estimated 75% of the global shortfall.

In 2023, over 80% of Europe ex-UK cross-border life business was unit-linked and the top three markets in accounted for just over three-quarters of total premiums. The impact of higher interest rates has therefore had a disproportionate impact on cross-border life companies in Europe that was concentrated in a relatively small number of individual markets.

Winners & Losers

The underperformance of the Europe ex-UK region in 2023 obscures the fact that, apart from Asia-Pacific, all the other regions increased their global share although only North and Latin America increased the volumes of business they wrote compared to 2022:
• North America experienced a 7% increase in new business volumes, reflecting the more favourable investment climate in that region and it remains the second largest global region.
• The UK maintained its global ranking of third in 2023 but experienced a 20% drop in new business for reasons similar to that of the Europe ex-UK region.
• The Middle East was again the fourth ranked region in 2023, representing 7% of the global total, but new premiums were down 10% on the previous year.
• Asia-Pacific was the fifth largest region in 2023 although its global share reduced slightly to 3.7%, with new premiums down 19% down year-on-year.
• The other noteworthy year-on-year increase in 2023 was the Latin America region with business volumes up 17.5% on 2022 and a global share of 1.3%, albeit from a low base. In 2023, emerging markets generally fared better than the more established and mature markets.
• Africa’s share of global share increased to 0.4% in 2023, but it remains the smallest global region.

There’s nothing to suggest that the global cross-border life market is in terminal decline, but it has proved to be noticeably less resilient in the face of recent market shocks, including the post pandemic period, than it has previously been noted for.

By way of perspective, in 2023, if the global cross-border life market were a country it would be roughly the same size as the domestic life market in Taiwan, the world’s 11th ranked global market by new business in 2023 .

Commenting on the results, AILO chairman Jeffrey More said: “Something of a ‘Perfect Storm’ impacted negatively on many aspects of the global cross-border life sector in 2023. Buoyant investment markets that would otherwise favour the sale of equity-linked product solutions were met with an interest rate environment not seen since before the global financial crisis and a preference for lower risk forms of investment. However, with inflation receding, growth recovering and lower interest rates returning, the sector is already beginning to see a recovery in 2024.”

The Global Cross-border Life Market in 2023 report is available exclusively to AILO Members on request to the secretariat@ailo.org

Although Starmer (pictured) repeated his pledge that income tax, National Insurance and VAT would not be increased, indicating that the wealthy would be the worst hit by any tax rises, there are plenty of other avenues, explored by Laura Suter, director of personal finance and other experts at AJ Bell in early reaction comments.

Suter said: “The prime minister took to Downing Street’s notorious rose garden in a speech today, making clear the heavy pruning that’s needed with government finances and laying the groundwork for tax rises as part of a ‘painful’ Budget on 30 October. While the speech’s key points largely mirror those made by chancellor Rachel Reeves in July, Starmer still struck an ominous tone. Growth remains the priority for the government though it is anything but a rosy economic picture, with the £22 billion ‘black hole’ supposedly identified when Labour came into power almost two months ago.

“In perhaps the most compelling indication yet of which taxes could be on the table in the October Budget, Starmer said that those with the ‘widest shoulders should bear the heaviest burden’, adding fuel to rumours around increases to capital gains tax and inheritance tax, while also doubling down on Labour’s manifesto commitment not to tinker with income tax, National Insurance or VAT. His comments will also reignite the rumours of a specific ‘wealth tax’ to be paid by the wealthiest in the UK. This could just take the form of increasing existing taxes for investors and the top earners, or it could be a new, standalone tax on those with the biggest pockets.

“Unsurprisingly, the record of the previous government was dragged over hot coals as Starmer defended last month’s decision to means test Winter Fuel Payments from this year. However, laying the blame at the door of the Conservatives is unlikely to assuage the concerns of the public over exactly which taxes could be subject to increases or how that may affect the nation’s finances as we head towards winter. Though it is always wise to ignore the rumours and to only make decisions based on the current tax system, we look at the tax changes that could be under consideration in the October Budget.”

Where might Labour turn for tax rises?

• Income tax

Suter said: “While the chancellor pledged in the election campaign not to raise the rate of income tax, that doesn’t preclude extending the current freeze on thresholds, which is tantamount to raising tax by the back door. It was a tactic used by the Conservatives to raise taxes on working households, with rising wages at a time of high inflation providing a super-charged stealth tax on earnings. The effect is muted somewhat when wage rises are lower, which is to be expected as inflation comes down, but it’s still an easy way to boost tax revenues.”

• Capital gains tax (CGT)

Suter said: “Having ruled out increases to some other taxes, capital gains tax (CGT) might appear like an obvious place for the government to make changes and generate more tax revenue. The most radical option is equalising CGT rates with income tax – which would represent a huge tax increase for investors. The Office for Tax Simplification, now disbanded, has previously argued the CGT exemption was too high and that the disparity between rates of CGT and income tax distorts decision making. The CGT free allowance has been slashed in the past two years as Jeremy Hunt sought to balance the books, but that doesn’t rule out further tax increases.

“However, it may not be the cash cow that many think it is. The government’s own figures show that a big increase in CGT rates could backfire and actually lead to lost revenue for the government. For example, raising both the lower and higher CGT rates by 10 percentage points, to 20% and 30% for non-property gains, would result in a total loss of £2.05 billion for the Exchequer by 2027/28. That’s because while the rates are higher, investors would be expected to change their behaviour to mitigate paying the tax.

“An alternative would be to get rid of some of the CGT tax breaks for businesses, where business owners selling their company benefit from a lower rate of CGT. Raising this rate from 10% up to 20% to equalise it with standard CGT rates is estimated to generate £710 million for the government by 2027/28 – but it’s clearly not a move that will be popular with entrepreneurs.

“CGT being wiped out on death also creates an incentive in some cases to hold onto assets so they are taxed as part of the estate under IHT, potentially paying less or no tax. But if the government scrapped this tax break, there would likely need to be some allowance made to account for inflation. Otherwise people who have owned investments for a very long time would be severely punished.”

• Dividend tax

Dan Coatsworth, investment analyst at AJ Bell said: “The previous government has already cut dividend tax allowance to the bone, going from £5,000 to the current £500. The big question is whether Labour is prepared to go any deeper.

“HMRC is expected to collect almost £18 billion from dividend tax in the current tax year so it is already a meaningful source of revenue. While slashing the allowance, perhaps to £250, cannot be ruled out, the new government would be incredibly unpopular with investors if it reduced the dividend allowance any further.

“Another option would be to raise the rate of dividend taxation, although there’s only so much room for manoeuvre with tax rates on dividends already very close to matching income tax rates for higher and additional rate taxpayers.

“The government will likely tread carefully here. Labour wants to encourage investment into the UK stock market and create a more vibrant place for British businesses to access growth capital. Therefore, taking even more of investors’ returns as tax would mean shooting itself in the foot.”

• Inheritance tax (IHT)

Suter said: “Often cited as the UK’s most hated tax, despite only being paid by a small proportion of the population, the chancellor could set her sights on raising money through IHT. At 40% it’s already one of the highest tax rates, so it’s unlikely we’d see a headline rate increase. What’s more likely if Ms Reeves did want to change this tax is cutting allowances or whittling away certain reliefs to increase the amount some estates pay.

“A couple leaving their main residence to their children could potentially shelter a £1 million estate from inheritance tax, thanks to both the nil-rate band and the residence-nil-rate band – but either of these could be cut. Another option is taking a red pen to the reliefs given to businesses or to gifting rules – although these aren’t overly generous anyway.”

• Pensions

Tom Selby, director of public policy at AJ Bell: “Pretty much every major fiscal event over the last two decades has been preceded by feverish speculation that the axe could fall on pension tax perks. There are broadly three different avenues the chancellor could pursue if she wanted to raise cash from savers – but each comes with significant practical and political challenges.”

“Most controversially, the government could move to restrict people’s entitlement to tax-free cash when they access their retirement pot. Currently, most people can take up to 25% of their fund from age 55 tax-free, with this minimum access age due to rise to 57 in 2028. The amount of tax-free cash most savers can take over their lifetime is capped at £268,275. Starmer and Reeves could, in theory, lower the amount of tax-free cash Brits are entitled to – or even abolish the entitlement altogether.

“However, this would be deeply unpopular and fundamentally undermine wider government efforts to boost long-term investing, including in UK Plc. It would also inevitably be hugely complicated, as those who have already built-up entitlements to tax-free cash under the existing rules would almost certainly need to be protected against a retrospective retirement tax. Furthermore, the overall amount people can access tax-free has already been scaled back significantly over the last 14 years, and if the current figure remains frozen, it will continue to be eroded in real terms.

“The most common pre-Budget pension tax relief speculation centres around the future of higher-rate pension relief and the potential to introduce a flat rate of pension tax relief. At the more extreme end, this measure could see pension tax relief restricted to the basic rate of 20% for all, with advocates suggesting this could raise billions of pounds of extra revenue for the Treasury.”

He continued: “However, as with most radical pension tax changes, introducing a flat rate of relief is much easier said than done. A huge chunk of any potential savings to the Treasury from a pension tax relief raid would come from defined benefit (DB) schemes, the majority of which now reside in the public sector.

“If a flat rate of pension tax relief below 40% were applied on these schemes, the only way to ensure the correct level of tax relief was applied to contributions from higher and additional-rate taxpayers would be to hit those members with a tax charge likely running into thousands of pounds. This would therefore risk opening up a blistering row with NHS staff and civil servants at a time when many public services are already stretched to breaking point.

“Lastly, the tax treatment of pensions on death will be viewed by many as low hanging tax fruit ready to be picked. Under existing rules, it is possible to pass on your retirement pot completely tax-free to your nominated beneficiaries if you die before age 75. If you die after age 75, any inherited pension is taxed in the same way as income. Crucially, pensions usually don’t form part of people’s estate for inheritance tax (IHT) purposes.

“This is undoubtedly a generous set of rules and something which could easily be reviewed by the new government. However, as is often the case with pensions, applying any new tax on death – or bringing pensions into the IHT net – would come with substantial challenges.

“The biggest of those would be around how to treat people who have made decisions about their retirement pot based on the pensions death tax rules as they are today. There will, for example, be lots of people who chose to transfer defined benefit pensions into a defined contribution scheme in part because they wanted to prioritise passing money on tax efficiently to loved ones. If all of a sudden that money became subject to a new pensions death tax, those people would, understandably, feel like the rug has been pulled from under them. It is therefore possible a complicated protection regime would be needed to ensure people are not subject to unfair and arguably retrospective tax measures. This would inevitably reduce the money the Treasury could potentially raise from such a move.”

The concept of the circular economy is becoming increasingly prevalent in discussions around supply chains, sustainability and geopolitical challenges leaving businesses with many questions:

What is the circular economy? How might it impact long-term business strategy? How might businesses reduce waste, and what reputational benefits might flow from this?

More broadly, business tax leaders are asking how the circular economy might fit with potential taxation developments. What has occurred to date and what might we see ‘around the corner’? What potential tax levers are out there and what is the likely impact on the business?

KPMG said in a statement that its paper “seeks to address these issues by explaining what is generally meant by circular economy, considering what tax, tariffs, and incentive levers are being used or proposed to drive a more circular economy and at what stage might they be applied in the life cycle of certain goods — the production stage, the use stage, or the end-of-life stage”.

The view KPMGs Global Responsible Tax Project in full please visit the link: Responsible Tax – KPMG Global

Some one in five (18%) of respondents plan to increase their current real estate investment risk tolerance, while 17% plan to decrease.

Key property sectors cited as likely to generate best returns over the next 12 months included: life sciences, warehouses & logistics and co-living. The appetite for retail sector investments was significantly lower, ASK notes.

Key challenges to investing in property over the coming period include: higher interest rates, changes in political leadership, increased regulation and changes to the tax system.

Around 13% of respondents said they felt housing should be the top priority for an incoming UK government. To boost investments in this area, this priority should include alleviating restrictions on conversions and brownfield sites, zoning and land use policies, and incentivisation for affordable housing. The current government has failed to deal with planning restrictions, the impact of affordability and the lack of a UK construction workforce according to respondents.

Daniel Austin, CEO and co-founder at ASK Partners, said: “Our research shows that investors plan to significantly boost their real estate investments in the next 12 months which is a really positive sign for capital investing in the sector and shows the strength of real estate debt as an asset class.”

“The positive sentiment towards the life sciences, warehouses & logistics, and co-living sectors, is certainly a reflection on the investment prospects we are anticipating due to market demand. However, higher interest rates, political changes, increased regulation, and tax adjustments are seen as key challenges.”

“To enhance investment, investors want to see the government focus on alleviating restrictions on conversions and brownfield sites, revising zoning and land use policies, and incentivising affordable housing. Addressing these issues could help overcome planning restrictions, affordability challenges, and the shortage of a construction workforce, thus strengthening the UK’s real estate market.”

“Housing is a pivotal election issue, linked to economic stability. Rising house prices and mortgage approvals suggest the beginnings of a recovery, but the housing shortage threatens a full turnaround. The UK faces an affordability crisis due to insufficient rental and sale properties, impacting GDP. Decades of social strain persist unresolved. Parties must present credible long-term plans, aiming for 300,000 homes annually, a target unmet since 2004. Reviving SME housebuilders, boosting skilled labour, and reforming planning are crucial.”

This article first appeared on IA’s sister title Investment International.