Macro Markets and Machines_The Economic and Market Transformation Driven by AI_GWM report - Flipbook - Page 18
Macro, Markets, and Machines
November 2025
For credit markets, the early AI build-out phase, which could be accompanied by higher borrowing costs, favours
issuers with strong balance sheets and access to capital markets. Over the long term, rising productivity and
improved profitability should strengthen corporate fundamentals, leading to spread compression and lower
default rates, opening opportunities in higher-yielding credit. Sectors linked to AI infrastructure (i.e., utilities,
industrials, and select investment-grade technology issuers) may benefit at first before efficiency gains broaden
out across other sectors.
Exhibit 12 – CBO’s Projections for U.S. Federal Debt-to-GDP Vary Under Different Productivity Outcomes
225%
200%
Debt to GDP
175%
150%
125%
100%
75%
2024
2029
Baseline
2034
2039
Slower productivity growth
2044
2049
2054
Faster productivity growth
Source: CBO; Scotia Wealth Management.
Section 2.5: Positioning Portfolios for the AI Economy
As we will discuss in later sections, advanced economies are best positioned to benefit from AI over the medium
to long term. These economies, particularly the United States, rank highest in AI exposure, preparedness, and
access to computing resources. They are also home to the companies leading the AI build-out, from
semiconductor producers to hyperscalers, making the case for favouring advanced economy equities, while
being more selective in emerging markets where infrastructure bottlenecks and slower AI adoption may limit
early gains.
That said, other markets may start to become more attractive as AI technologies become more accessible and
the cost of compute declines. As such, investors should be on the lookout for second-derivative beneficiaries
among emerging markets, particularly in countries with high literacy rates, skilled labour, and energy capacity
that can support AI-linked infrastructure growth.
While AI has the potential to reshape the global economy, its long-term market implications may not unfold in a
straight line. The technology promises higher productivity, lower costs, and stronger profitability, all of which
favour equities. Yet, as with every major innovation cycle, there will be phases of adjustment, uneven diffusion,
and unexpected policy responses. From an asset-allocation standpoint, equities remain the clearest long-term
beneficiaries. Companies that successfully integrate AI into their business models stand to expand margins,
enhance efficiency, and capture greater market share. Equities are also a better hedge against inflation, an
important factor to consider given the upside risks to costs discussed earlier.
However, while the structural case for equities is strong, it is not without risks. Concentration remains elevated,
with index-level returns still driven by a handful of mega-cap technology firms. Policy and regulatory uncertainty
– ranging from antitrust enforcement to data governance, AI safety rules, and semiconductor export controls –
could affect the trajectory of sector leadership and valuations.
Scotia Wealth Management
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