Global Long-Term Unconstrained - 2025 Outlook | Martin Currie - Asia
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Global Long-Term Unconstrained -
2025 Outlook

The year where known unknowns in the US could shift the dynamics globally.

Date published
10 Dec 2024
Tag

Five for 2025:

Five graphics on inflation, monetary policies, growth, earnings and valuations for investors to consider as we look into 2025

The clean sweep for Donald Trump and Republicans in the US presidential election, in our view, will have the biggest influence on global markets in 2025.

Proposed blanket tariffs on global trade partners could stoke inflationary pressures, leading to a more hawkish response from the US Federal Reserve (Fed), and an increase in geopolitical tensions.

Equally, cuts in corporate taxes could boost earnings, and China’s economic stimulus could be supportive to global growth. Against an uncertain backdrop we continue to focus on quality growth companies with higher margins, solid balance sheets, solid barriers to entry, pricing power, low disruption risks, and exposure to structural growth themes.

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Inflation and tariffs
The key area for us as we look into 2025 is the ongoing focus on inflation. Although inflation has continued to ease in 2024, the prospect of US president-elect Donald Trump’s blanket tariffs on global trade partners presents a major inflation risk. Inflation is likely to remain stickier in 2025, notably due to still elevated wage inflation across key regions, whilst tariffs could pour fuel onto the inflation fire – a key risk to watch out for.

250

Monetary policy
Central banks began their rate cutting cycle in the second half of 2024, and we expect further cuts in 2025 across regions. The aforementioned spectre of global trade tariffs and subsequent inflation risk could however lead to ‘hawkish doves’ at the Fed to have to slow down or even pause the pace of interest rate cuts in 2025. In contrast the European Central Bank (ECB) and other central banks could continue with their cuts, which would create divergent policies. A pause in Fed rate cuts could lead to a stronger dollar, a possible benefit to US equities but a headwind to international equities. With such uncertainty in markets, this emphasises the need to focus on stock fundamentals.

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Growth outlook
We expect another year of resilient economic growth in the US in 2025, at c.+2.1-2.5%1, and reduce our probability of recession back down to 15-20% from 35-40%. Leading indicators remain mixed globally, however, both on the manufacturing and the services fronts, and there is now further uncertainty around how economic momentum will respond to Trump policy actions.

In China, the world's second largest economy, the recent string of policy initiatives is encouraging, and could in turn be somewhat supportive to the global economic cycle. But we need to see further actions by the Chinese authorities, in order to prop up their economy, which we forecast to grow at +4.0-4.8%1 in 2025.

Europe is likely to remain in a low growth environment, at +0.8-1.2%1, with potential downside risk from tighter fiscal policies, and potential impact from trade tariffs. In terms of the global growth outlook, we expect a steady growth in 2025, at c.+2.8-3.1%1.

In such low growth environment, we continue to focus on companies that can ‘generate their own weather’ – those supported by long-term structural growth trends.

  • We continue to see our three seismic thematic opportunities as providing key areas of structural growth, although the dynamics could change with a new Trump presidency.

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Corporate earnings
Earnings have been volatile during 2024, with only the US avoiding outright downgrades. Earnings growth in 2025 could be slightly more supportive across regions, with teens growth both at the Global and US levels. Proposed corporate tax cuts and an extension to previous tax credits in the US could add c.5-8% to earnings growth predictions in 2025. But, this could simply offset what are in our view overly optimistic consensus earnings projections. In a situation where there is a risk of negative earnings momentum, it is important to find companies that either resist downwards revisions (especially in cyclical sectors), or that can deliver a positive surprise.

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Valuations
Valuations in the US appear stretched versus history, and will require both a supportive earnings momentum and a continued easing of monetary policies from here. Valuations in Europe, China and the rest of Asia are more supportive, although structural and cyclical headwinds remain apparent, and geopolitical risks are more elevated. We remain disciplined in our valuation approach, and continue to see more opportunities notably in Europe, although recently we have been finding some interesting stock specific opportunities in the US.

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Five risks to consider in 2025
Trump’s presidency and notably the introduction (or not) of proposed trade tariffs by the US, directly impacts the magnitude of all five key risks that we foresee for 2025. These are: 1) stickier inflation, 2) less dovish monetary policies, 3) tariffs and trade wars, 4) geopolitical uncertainty in the Middle East, Ukraine and China/Taiwan, and 5) government debt and fiscal policies. One has to however consider that these risks have the potential to be mitigated, should Trump not follow through on tariffs, which could be the case if the Republican’s economics team is able to highlight to him the negatives on growth and on monetary policies from such action. In such instance, we believe that it would provide additional support to risky assets.

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Structural growth opportunities remain plentiful
Although the dynamics could change with a new Trump presidency, we continue to see our three seismic thematic opportunities as providing key areas of structural growth. These are Energy Transition, Aging Population, and Artificial Intelligence. Energy Transition could be the theme that faces the biggest uncertainty post Trump’s election, and during this interim period. We do however believe that corporates will continue to focus on reducing their carbon footprint. The aging population will remain an important focal point in our view, across governments and the private sector. Artificial Intelligence remains undervalued by the market in our view, both in terms of the magnitude of the addressable market, and in terms of the speed at which the opportunity could be harnessed. It could in particular unleash a long period of major boost to corporate productivity across sectors.

Sources

1Source: Martin Currie internal estimates of GDP growth.


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