We see five key macro themes shaping next year:

The abrdn House View helps our fund managers and clients navigate these uncertainties. The House View brings together our investment expertise from across asset classes and research teams, to send high level signals on key markets over the next 12 to 18 months. While our fund managers have autonomy to deviate from the House View, they are asked to provide a rationale for this divergence and feed-back dissenting views for continuous improvement. 

Source: abrdn, December 2024

Embracing developed market equities

We have turned more positive on developed market equities. The outlook for US earnings growth is strong and developments in technology and artificial intelligence provide a robust foundation for stock market performance. However, with valuations elevated, we recommend a shift within tech equity exposure, away from semiconductor capital expenditure plays to other hardware and software sectors.

Focusing on US policy shifts

Impending shifts in US policy will disproportionately benefit US firms. President Donald Trump's deregulation agenda – including easing mergers and acquisitions regulations, relaxing bank capital requirements and granting more energy exploration permits – should be supportive. A reduction in corporation tax, potentially falling from 21% to as low as 15% in some cases, would disproportionately benefit smaller companies, although trade tariffs might negatively impact internationally exposed firms.

Valuation concerns and political risks

However, US equity valuations are stretched, with the valuation gap between US and European stocks at a record high, posing a significant downside risk. Additionally, we’re cautious about potential disruptions to the US labour market from immigration reform, and the risk of higher inflation and tighter-than-expected monetary policy.

Credit market strategies

We remain optimistic about investment-grade corporate bonds, driven by positive risk sentiment and higher nominal economic growth. An attractive all-in yield and the potential for performance in both economic upside and downside scenarios underpin this confidence. Conversely, we maintain our neutral stance on high-yield debt. While some of Trump’s policies could support this asset class, stretched valuations and refinancing risk warrant caution.

Developed market government bonds

With the Federal Reserve approaching the end of its rate cutting cycle, we are neutral on developed market government bonds. But sustained monetary easing by the European Central Bank make Eurozone markets more attractive for any duration risk, despite the political flashpoints on the continent in 2025.

US dollar and global trade uncertainty

We expect divergence in growth and monetary policy between the US and the rest of the world to support the US dollar, so we remain positive on the currency. Some of Trump’s advisors have expressed an aversion to a strong dollar, but there are major challenges in achieving an international agreement to weaken the currency.

Emerging market debt and equities

Global trade uncertainty and a stronger dollar are likely to be headwinds for local currency emerging market (EM) debt. As a result, we have downgraded this asset class to neutral. However, we expect EM winners as well as losers amid changing globalisation dynamics, and there are opportunities among higher-yielding countries, such as those in Latin America.

We remain modestly positive on emerging market equities, with Chinese growth showing signs of recovery heading into 2025 and further policy easing likely. The low valuations in this asset class look attractive, especially if China delivers more policy easing than markets currently anticipate.

Global direct real estate

We have further upgraded our signal to global direct real estate. The market is turning up from the bottom of its cycle, presenting a good buying opportunity. The yield premium above fixed income is attractive, especially in Europe, while investor sentiment and market liquidity are improving.