It’s not just tech firms that will find ways to harness AI to improve their bottom line. In fact, it’s not just firms at all – entire economies are poised to benefit. But, as research group Capital Economics reveals in its latest report, they won’t all prosper to the same extent.

What’s the study?

Productivity gains from AI will depend on whether countries have the factors in place to get the most out of the technology. And that means three things: complementary advancements (innovation), spreading the tech across industries (diffusion), and making sure displaced workers and capital can be redeployed (adaptation).

The researchers at Capital Economics used 40 indicators to score 33 countries based on these three factors, and then combined those into a composite score to rank the countries.

The US tops the chart here – the study forecasts that productivity growth in the US will average 2.3% a year in the 2030s, slightly stronger than during the 1990s internet boom.

The “Asian Tigers” (Hong Kong, Singapore, Taiwan, and South Korea) and the UK are also well-placed to benefit. China ranks around the middle of the group of 33 countries, with its strong innovation capacity and large investment in AI offset by a strict regulatory approach that’ll likely slow the spread of AI technology.

As an investor, what does this mean for me?

The idea here is to invest in the overall potential for AI-induced growth. Because of all the ways AI can be used, gains will filter across many industries, and that’s good news for stocks.

Having said that, the buzz surrounding AI has driven US shares to record highs, leaving their valuations way above historical averages. Exploring other countries that are set to benefit from AI could unveil more attractive investment opportunities. Our Technology Enablers Thematic portfolio – which includes companies from across the globe – might be a great start.

💡 Investors’ Corner: What 96 years of interest rate cuts can tell you

With many investors expecting the US Federal Reserve (the Fed) to cut interest rates this year, it could be helpful to know what that might mean for your investments.

Conveniently, UK investment group Schroders has done the research – studying 22 rate-cutting periods, dating all the way back to 1928. If prevailing trends hold, you could expect to see a good year for returns.

Historically, in the 12 months after the Fed began cutting interest rates, US stocks saw an average return that was 11 percentage points higher than the rate of inflation. Stocks also beat cash returns in those periods by 9 percentage points, on average.

Falling interest rates can push up stock valuations, because the risk-free rate (our Simply Finance section below explains this) delivered by government debt falls when interest rates drop, making riskier assets more attractive.

Those historical returns are even more impressive when you consider the economic backdrop: in 16 of the 22 cases studied, the US was either already in a recession when the cuts began or slipped into one within a year. 

Sure, returns were better in scenarios where the economy managed to avoid a recession, but they were still positive even when it didn’t. That’s the other takeaway here: while no one ever wants a recession, stock investors probably don’t have to be terrified of one either.

These articles were written in collaboration with Finimize.

🎓 Simply Finance: Risk-free rate

The risk-free rate is the theoretical return on an investment that is considered completely secure, with no chance of loss.

It's often linked to government bonds, particularly those with minimal risk, like US Treasury bonds – it’s considered very unlikely for the US government to default on its debts. Investors use the risk-free rate as a benchmark to compare other investments, and figure out if they're worth the extra risk.

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