Investment Monthly
08 January 2025
Key takeaways
- Global conditions are supportive of further market gains in 2025, but rising policy uncertainty is likely to translate to a more volatile market environment
- Converging global growth gives neglected parts of global stock markets outside the US an opportunity to catch up
- Emerging and frontier markets trade at a valuation discount, and have the potential to deliver strong returns
- Diversification into alternatives such as hedge funds, private credit, and defensive real assets can build portfolio resilience
Macro Outlook
- A backdrop of active fiscal policy, trade uncertainty, and geopolitical tensions may cause volatility and could leave investors ‘spinning around’ in 2025
- We expect disinflation, resilient growth, and robust corporate profits to progress, allowing the global rate cutting cycle to continue
- Growth rates in advanced economies are expected to converge. US growth is cooling but we see little risk of a near-term downturn. The world’s premium economic growth rates will be in Asia and Frontier economies
- For emerging markets, US dollar dynamics are key. It is hard to forecast a materially weaker dollar in 2025, but a stronger dollar isn’t guaranteed
Policy Outlook
- The outlook for global trade policies is unclear, and US fiscal policy is set to remain loose. Concerns about inflation are likely to linger for a bit longer
- Interest rate cutting cycles are likely to be shallow in 2025, with the Fed taking a more hawkish view on inflation and the timetable for further rate cuts
- In the eurozone, headline inflation is close to its 2 per cent target and growth should move towards trend in 2025 – the ECB has more room for easing
- Chinese policy support – including liquidity, fiscal/credit, structural measures – can boost the economy out of the deflation trap