The Investment Outlook: Introduction (December 2024)

The over-arching investment question heading into 2025 is what Donald Trump’s return to the White House will mean for the global economy and markets.

Trump’s likely policy measures will include tax cuts, less regulation, and a more digital US public sector. This could boost growth, support corporate risk, and even reduce concerns about government debt. Yet, Trump also brings a set of policies potentially being more damaging to the economy, including tariff increases and higher deportations.

Our economists now think US inflation is going to stay above target, growth is going to be stronger over the next couple of years but weaker further out. The Federal Reserve will also end its rate cutting cycle in the second half of 2025. With our House View setting the scene for how the economy will evolve, our fund managers are actively looking for the investment opportunities as the impacts play out across all asset classes and strategies.

The Eurozone is facing political and economic challenges. Early elections in Germany and the collapse of France's government complicate fiscal consolidation efforts. The German auto industry is especially vulnerable to any trade measures, while the periphery of the Eurozone is growing strongly.

The European Central Bank will need to ease by more than the US to support the economy. Over the long run, structural reform as proposed in the Draghi report is necessary to improve Europe’s competitiveness and productivity.

Regional conflicts will also feel the Trump effect. It’s becoming more likely that a fragile ceasefire is going to be reached in Ukraine next year. In the Middle East, the focus is going to be on Iran, with further sanctions or military action possible. The fall of Assad in Syria underlines that volatility will remain elevated in the region, although the oil price impacts have been modest for now. This could change.

Trump will also have implications for sustainable investing, including withdrawing the US from the Paris agreement. Our Sustainability team think large parts of the US Inflation Reduction Act, which has supported green investment, will remain in place. We expect sustainability concerns to remain a key part of investors’ thinking in Europe.

Finally, Trump's trade policies will impact China and many emerging markets. Tariffs on Chinese imports could rise to 40%. China in turn is likely to stimulate more, depreciate the yuan, and could retaliate with critical mineral export restrictions and/or targeting of US companies. The likes of India, Mexico, Korea and Taiwan could benefit from shifting global supply chains and reduced US reliance on China. Friend-shoring is still an important theme in Asia, but also for emerging markets.

While our House View is still positive on US equities, asset allocators should look beyond the Magnificent 7 in 2025. Private markets, short-dated credit, and hedge fund strategies could be compelling alternatives from a diversification and risk-adjusted return perspective next year. We see this clearly in our requests for proposals from clients and it’s a main topic in our conversations with asset owners globally.

In this last edition of the Investment Outlook for the year, we look at many of these issues in more detail, with investors from across our asset classes analysing key developments and sharing insights to help you navigate the year ahead. Enjoy the reading.

Season's greetings,
Peter Branner