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In focus: A look-ahead to 2025

Global equity investors should find further opportunities to bolster portfolios in 2025, with sectors such as health care and energy looking attractive due to favorable valuations. In addition, policy easing by major central banks and a potentially business-friendly US presidency bode well for the outlook.

However, investors may have to navigate the headwinds from US tariff hikes, global trade disruptions and geopolitical conflicts, among other risks. Capturing alpha in this environment will be a test of price discipline and stock selection expertise.

Investment outlook

In North America, we expect solid growth globally in 2025, with the United States again leading. The consumer is in good shape and business optimism is high, especially in the United States. The Republicans’ aggressive agenda to spur growth through deregulation and tax cuts should support good earnings growth for companies, especially for cyclicals and likely also for small caps in the United States. Of course, some of this optimism is baked into the market, given recent stock performance and current valuations, but we believe there may be more to go.  

In Asia, APAC equities should see further earnings growth in 2025, in our view, as the recovery from the doldrums of 2023 continues. However, US policy risks cloud the regional outlook, with tariff hikes and trade disruptions having a potentially outsized impact on Asia’s exporting economies. We believe the information technology sector in Taiwan and South Korea is particularly vulnerable due to significant revenue exposure to the US market. A range of Chinese and Hong Kong firms in the consumer and pharmaceutical sectors may face increased headwinds as well. Overall, expectations for regional earnings currently point to growth of around 5% in 2025, compared to the 20% estimated for 2024.1

In Europe, we remain cautiously positive on European equities in early 2025. Although 2024 was a challenging year for thematic equities outside of the Magnificent Seven, expectations now look very low, and we think fundamentals should drive stocks from here. Economic growth may continue to underwhelm in Europe, but should the US and China economies hold up, we expect incremental improvements. While election outcomes influenced 2024 market moves, we expect fundamentals to play a greater role in 2025.   

Market review: December 2024

In December, Global equities collectively delivered a negative return in US-dollar terms, as eight out of the 11 global equity sectors retreated. In US-dollar terms, emerging market equities outperformed developed market equities, while global growth stocks significantly outperformed global value stocks.

Signals from the Fed that it intends to be cautious about further rate cuts helped drive global equities collectively lower in December 2024. Additionally, investors outside the United States were concerned about President-elect Donald Trump’s tariff plans and their implications on global trade. On the economic front, global manufacturing activity contracted in December after stabilizing in November, while flash reports for December showed that services activity remained strong in many regions.

Endnote

  1. Source: Bloomberg. January 7, 2025. Based on the MSCI AC Asia Pacific Index.
     

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Equity securities are subject to price fluctuation and possible loss of principal. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks. There can be no assurance that multi-factor stock selection process will enhance performance. Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods.

Active management does not ensure gains or protect against market declines.

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically. The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.

Investments in fast-growing industries like the technology sector (which historically has been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments.

Diversification does not guarantee a profit or protect against a loss.

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