2025: Time to deliver

Key points

• The US economy powered ahead in 2024.
• Many equity markets are near, or at, all-time highs.
• But can central banks deliver ‘soft landings’ and politicians keep their election promises in 2025?
• In uncertain times, for investors, diversification remains the watchword.

What a last 12 months. A contentious US election, plus many more votes to boot, continued tensions in the Middle East and on trade, and central banks in rate-cutting mood.

While the period might have offered a few answers, many questions have opened up. Can the US Federal Reserve deliver a ’soft landing’? How much of a difference will China’s stimulus package really make? Will companies match the elevated earnings’ growth expectations? Is artificial intelligence (AI) actually going to boost productivity much?

The strong equity market performance and further tightening in credit spreads seen in 2024 suggest that investors are banking on a scenario where most of these questions are answered in the affirmative. The result of this optimism is that some of the returns initially expected to materialise in 2025, may have already occurred. In this context, and with a global economy that is unlikely to generate much better gross domestic product growth, a period of lower returns probably lies ahead.

Opportunities in 2025

That said, there are always opportunities, for those who know where to look. Whether it’s a broadening of the equity rally, or ‘carry’ and relative-value trades in fixed income markets, most of the action will likely take place in specific sectors or companies, rather than at the index level, in 2025.

Risks are numerous, though. Politics and geopolitics won’t suddenly create less noise, and central banks are walking a tightrope in trying to land their respective economies softly, without falling into recession. Investors will need to stay nimble, broaden their universe and embrace diversification.

Then there is AI, perhaps the term of the year for investors. The coming months will be critical for delivering on the hype, and its effect on companies’ results. In a typical cycle for emerging technology, such as this one, the peak of inflated expectations is usually followed by a trough of disillusionment. To avoid this, companies will have to show clear signs that AI is delivering on its promises. Those that don’t, will suffer the consequences.

Navigating through the turbulence ahead

In such a difficult environment, investors should rely on clear frameworks to guide their investment decisions. It all starts from appropriate planning. When it comes to execution, the key is to avoid succumbing to our biases, and to remain focused on the ‘big picture’. Here, a precise analysis of environmental, social and governance (ESG) factors should prove useful.

Every year is challenging for investors, and 2025 won’t be any different. Uncertainty has rarely been so high, and wide-ranging. Unfortunately, there is no choice but to embrace it. In this outlook, we don’t offer scenario analysis or probability-weighted outcomes. These are of little use in the real world. Instead, find out more about our insights on the global economy, as well as the investment opportunities and themes for the coming year.