Because the markets enter 2025, private banks are taking a look at where, literally, to place their money. China? The US? Emerging markets? Where is the perfect bet? PBI asks the experts.
When eager about 2025 from an investment perspective, similar themes are inclined to recur: politics, the state of the economy and where we’re within the rate of interest cycle. Other regional or market-specific aspects often feature strongly as well, reminiscent of China or the Middle East. And so, we discover ourselves asking questions each familiar and latest: What’s going to the second Trump administration do, particularly in relation to tariffs? How will it cope with China? What might spring from a possible German election in the brand new yr?
For what it’s value, our approach is to not get caught up an excessive amount of in all of this and focus as an alternative on firmer foundations. Is the US economy in broadly good condition? Yes, we predict it’s, and due to this fact there’s the potential for US firms to proceed to grow earnings. Do certain markets look low cost relative to the US? Yes, we predict the UK and Europe each do and so present opportunities to allocate funds at relatively attractive valuations. Due to this fact, our positioning tends to reflect how we see the massive picture overall versus a response to anyone specific event.
Consequently, we’re broadly positive on risk assets – meaning equities and credit (or corporate bonds) – believing that the majority developed markets should avoid recession. We aim to position our equity allocation to incorporate a very good spread of ‘value’ and ‘growth’ managers on the idea that while we wish to profit from the expansion areas of the market, we’re also cognisant that some sectors could also be unjustifiably expensive to purchase, including some ‘tech’.
Within the US, the UK, and Europe now we have increased our exposure to small and medium-sized firms as these are low cost relative to their long-term valuations and may profit from rates of interest coming down, particularly if respective domestic economic growth accelerates.
Our view of presidency bonds is a little more cautious given the fiscal spending plans for governments across the developed world. We expect the rise in supply of presidency bonds may keep yields on offer higher than within the last decade. As usual, we wish to keep up a healthy position to pick ‘diversifiers/alternatives’ inside our funds like infrastructure and gold, along with some hedge strategies. Historically these have provided alternative sources of return, as they did in the course of the pandemic, and more recently the strong performance of the gold price during the last 12 months.
Investment risks present at first of 2024 (many alluded to herein, including the timing of rate of interest cuts, inflation, ‘soft-landing’ and geo-politics) are still manifest today to various degrees. This uncertainty renders a fund manager’s job tricky and we due to this fact haven’t placed any strong conviction trades, keeping our investment decisions predominantly to a broad asset-class level, and generating excellent results for the Close Tactical Select Passive range. Gold, specifically, is a stand-out performer in 2024.
We now have greater certainty in 2025 – with Trump within the US, Labour here within the UK, and major economies in decent condition. Even when economic worries reassert themselves in 2025, we all know most developed markets are equipped with monetary policy tools to ease and stimulate.
This peace of mind helps us to feel broadly positive on risk assets. We too are positioning our equity allocation to capture each ‘value’ and ‘growth’ aspects, mainly through a comparatively high weight in UK equities, which predominantly consist of more-traditional ‘value’ sectors and firms; but additionally by remaining obese ‘tech’ in US. We’re on the lookout for more targeted exposures – whether sectors or thematic – that may profit from Trump’s future policies, potential further China stimulus and an environment where company fundamentals drive stock market performance quite than sentiment. In Fixed Income we wish to lower duration (or rate of interest risk sensitivity) and catch up with to a neutral position by buying shorter-dated maturities. We might be seeking to take some profits on gold.
Within the background, we proceed our fundamental research with interesting latest ETF launches in infrastructure, ‘growth’ assets in additional concentrated mega-cap names in addition to quite a few small-cap exposures, all worthy of our attention.
There’s been lots to digest for the worldwide economy and financial markets in the primary half of the 2020s—a pandemic, geopolitical tensions in Europe and the Middle East, some major political shifts and a world energy crisis resulting in a big bout of inflation.
While 2024 has been a yr of stabilisation, with inflation and rates of interest finally easing and economic growth proving to be more resilient than expected – aspects that helped to deliver a stellar return for those investing in US equities – headwinds remain. Inflation risks are back on the agenda and government debt levels, together with simmering geopolitical tensions, are still a cause for concern.
As we now embark on the second half of the last decade, 2025 guarantees to be one other yr of change with loads of twists and turns along the best way, not least with the return of Donald Trump as President in January following his resounding win in November’s US election.
His presidency will mark a decisive shift in US policymaking, with lots of his policies diametrically against those of the outgoing Biden administration. These, and other changes, will reverberate across the worldwide economy, with vital implications for financial markets.
Just two years ago investors were fretting as inflation took hold across the worldwide economy and central banks looked set to hike rates of interest. Fast forward to today and the economy appears to have defied economists’ gloomy recession forecasts to stay robust.
The worldwide economy just isn’t in bad shape; unemployment in developed economies is near record lows and output growth remains to be solid. The Federal Reserve, European Central Bank and Bank of England are lowering rates of interest in response to decelerating inflation and to safeguard against risks from relatively high real borrowing costs. Whilst now we have seen market expectations of inflation tick up for the reason that US election, the inflation profile stays closer to focus on than at some other time within the recent past.
Meanwhile, the Chinese authorities are attempting to reflate the sluggish economy to avoid deflation. China’s recent stimulus measures include an unprecedented scheme which allows the central bank to inject liquidity within the system to support brokers, asset managers and insurers in purchasing stocks. Does this suggest that the Chinese authorities have taken a “whatever it takes” commitment to support its capital markets and economy?
With Western and Eastern policymakers easing monetary policy, we could see global growth speed up over the following 12 months.
The US stock market’s performance has been extraordinary over the past decade, consistently outperforming its global peers. The strength and vibrancy of the US economy, together with innovation within the tech sector, has driven company earnings and valuations higher. Nonetheless, this comes at a value: investors are starting to contemplate among the multiples out there quite demanding with a high percentage of the general valuation concentrated in a handful of names.
Even so, we consider US exceptionalism is prone to proceed under the incoming Trump administration. It’s well-known that Trump views the US stock market as one of the vital barometers of economic performance and, as such, he’ll look to implement supportive policies. This includes maintaining and even reducing an already low level of corporate taxation. He can also be expected to slash bureaucratic red tape which could facilitate greater innovation and efficiency with a resulting boost in productivity.
The predominant risk to this much advertised stance is that Trump follows through on a few of his more extreme commitments from the election campaign including sizeable tariffs on Chinese imports and the deportation of thousands and thousands of undocumented migrants. Such steps are prone to have a negative impact on growth and would put upward pressure on prices.
With global growth set to speed up over the following 12 months, firms have a chance to deliver strong earnings. It’s value noting, nonetheless, that the bar for outperformance has been raised. Consensus expectations are for Earnings Per Share for firms globally within the MSCI benchmark to grow 12% in 2025, 3 percentage points higher than the expectations for 2024.1 US listed firms are prone to drive this, with US earnings growth expected to top 14%.1
In recent times, strong corporate performance within the US has been led by the so-called Magnificent 7—Nvidia, Microsoft, Alphabet (the parent owner of Google), Meta, Amazon, Apple, and Tesla—who delivered very strong annual earnings growth – 30% higher than the remaining of the S&P combined – during 2023 and 2024.2
In 2025, earnings are expected to broaden out; analysts estimate 18% earnings growth for the Magnificent 7, in comparison with 12% for the rest of the S&P 500.2
While the Mag 7 are still expected to outperform on earnings, the gap is way narrower than in recent times. Might the market move to narrow the stock price performance gap too?
Over the following five years, we expect to see more concern amongst investors about government debt levels. Government borrowing spiked in the course of the pandemic as policymakers sought to offset the negative economic impact of rolling lockdowns. In some respects, this was manageable as expenditure could possibly be financed at record low rates of interest.
Nonetheless, the environment has modified. The fee of servicing this debt pile has increased sharply and while we expect to see monetary easing in the following 12 months, a return to record low rates of interest seems unlikely. Furthermore, governments face growing fiscal expenditures related to several structural megatrends—ageing societies with ballooning spending on healthcare and pensions, a changing world order meaning higher defence spending, and an expensive energy transition and infrastructure rebuild.
Scott Bessant, the incoming US Treasury secretary, has stated that he wants to scale back the US budget deficit to three% by 2028, the last yr of Trump’s second term. But given the deficit is anticipated to top 6% in 2024 that appears a tall order.3 With the US debt ceiling requiring an extension in 2025, investors might expect to see more volatility in government bond yields.
Geopolitical concerns look like growing. In Eastern Europe, tensions have intensified following President Biden’s green light for Ukraine to make use of American made long-range missiles to attack Russia. The Israel-Hezbollah ceasefire deal may diminish the danger of further escalation within the Middle East within the short term but peace within the region stays extremely fragile.
How will the incoming Trump administration play in all of this, given his isolationist approach? Can the brand new US foreign policy ease things? President-elect Trump has made it clear that he desires to broker a ceasefire between Russia and Ukraine, and he can likely count on the facility of US financial and military resources to force through a deal. Like his first term, Trump could well impose or threaten severe sanctions on Iran to weaken its influence within the region. Which will appease Israel and reduce the danger of further Israeli military strikes on Iran.
One other big unknown in 2025 is China and the way far it wants to increase its influence within the Pacific, especially if the US becomes more insular.
The private equity market continues to suffer from low distributions, but in the approaching years, we are going to see stronger growth within the US in comparison with European markets.
Following Trump’s election win, the US will proceed to rebound at a quicker pace. Trump’s projected deregulation will drive investments within the US market. This may come on the expense of European markets, leaving the European private market relatively weaker.
While the US market looks stronger, distributions is not going to begin immediately upon Trump’s return to the White House—other significant macroeconomic drivers will come into play. The economy must see notable improvements, including a better variety of IPOs and M&As.
Consequently, latest fund investments is not going to occur within the immediate future, and the PE industry’s recovery will take time.
The secondary market is poised for strong growth, globally, fuelled by several converging aspects.
The era of “free money” is firmly behind us, and as LPs adjust to this latest reality, the secondary market is reinforcing its role as a critical tool for liquidity. Suppressed buy-side demand in 2024 created pent-up interest, which, combined with an increasing variety of motivated sellers in the approaching years, will drive secondary market activity to latest heights. Transaction volumes could rise significantly, from an estimated $150bn in 2024 to as much as $250bn by the top of 2025.
In Europe, ongoing challenges in the first market will likely push more LPs toward secondaries. Meanwhile, the US secondary market will profit from stronger macroeconomic tailwinds and a more robust rebound in private equity activity.
This perfect storm of conditions—liquidity needs, suppressed buy-side demand, and a difficult fundraising environment—sets the stage for secondaries to play a pivotal role within the private markets landscape within the years ahead.
Despite earlier concerns, the US avoided a recession, the eurozone and UK experienced only mild downturns, and China picked up steam towards the top of the yr. While there have been occasional spikes in market volatility, the general story of 2024 was one among growth – powered in no small part by structural themes, including the rapid rise of recent technologies.
We’re also reducing our exposure to European and US investment-grade corporate credit as we don’t consider valuations adequately compensate for risks. Finally, with US fiscal policies potentially turning more inflationary, we’re swapping shorter-dated US inflation-protected bonds for longer-dated ones.
“Which geographical markets should private banking be taking a look at in 2025?” was originally created and published by Private Banker International, a GlobalData owned brand.
The data on this site has been included in good faith for general informational purposes only. It just isn’t intended to amount to advice on which you must rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You need to obtain skilled or specialist advice before taking, or refraining from, any motion on the idea of the content on our site.