Our title for this publication of our Global Outlook and Strategy is Changing of the Guard. The title is a reflection on some of the significant changes that have occurred across economies, markets, and geopolitics in the second half of 2024. Many of these changes are likely to continue to reverberate into 2025. In focus for 2025 will be:
• Financial markets recalibrated their expectations around the depth of future interest rate reductions from central banks with the consequent upward move in bond yields. Bond market vigilantes are stirring!
• Equity markets remain attractive, albeit we are likely to see a broadening of the rally and some volatility in the more highly valued markets as they become dependent on earnings outcomes.
• Credit remains an attractive income generating asset class as long as managed by experienced fund managers who have invested through previous credit cycles.
• The US economy remains robust, whilst many other economies have more subdued levels of growth including Australia. The Chinese and European economies remain at sub-par level of growth, compared to history, and are of concern to markets.
• Geopolitics will remain in focus with the events in Ukraine and the Middle East dominating the political landscape under a new US President.
• US politics will be in focus following the Republican presidential victory and the party’s sweep of the Senate and House. Uncertainty remains around the path for trade and fiscal policy. Markets remain optimistic that tariff policies will be less aggressive than the rhetoric, the administration will be pro-business and that there will be a focus on reducing the size of government to fund tax cuts. Trump’s first presidency guides us to expect bouts of volatility.
• The Chinese and European economies remain at sub-par level of growth, compared to history, and are of concern to markets.
• Inflation is no longer seen as benign and could drift up from current levels in our view.
• Global interest rates are normalizing to longer term averages and away from the abnormally low levels of the past decade.
• 2025 will be an important year for private assets in delivering on their long term promise of superior returns.
• Active, nimble investment management will be key in navigating the expected volatility.