The year 2024 ends with great economic disparities between regions. Which asset classes to favor to approach 2025?
After a year of timid global growth, disparities between regions are widening. In the United States, activity remains robust, while Europe is struggling to regain its momentum, and China is being held back by disappointing consumption. These differences, amplified by geopolitical tensions and political uncertainty in several countries, strongly influence financial markets. In 2024, investors showed marked optimism towards the US market, while reducing their exposure to European and emerging stocks. These trends could continue into 2025 although opportunities are emerging in assets currently undervalued or perceived as risky.
Our asset allocation at the start of 2025
Our scenario is based on a soft landing for global growth, particularly for the American economy. In China, the economic measures announced at the end of 2024 are struggling to produce the expected effects. Whereas, Trump’s arrival at the White House raises questions: his campaign promises – customs duties, tax cuts and deregulation – could redistribute the cards. Moderate policy would limit negative impacts, but tougher measures could weigh on global growth and fuel inflation.
Moderately positive on stocks
In this context, we favor stocks over bonds. The American markets remain in our favor: despite high valuations, the solidity of the economy and businesses remains an asset. We are increasing our weighting on cyclical stocks which should benefit from a Trump policy deemed favorable to the domestic market.
In Europe, our outlook is more reserved: the expected benefits are limited in a context of less dynamic investment and productivity gains than in the United States. Germany, still reluctant to relax its budgetary policy, and trade tensions with the US are slowing growth prospects. The same is true for emerging markets. Trump’s announcements and a strong dollar could also weigh on this region. Finally, we are also neutral on Japan.
A selective approach to bonds
On the bond side, we favor European government securities, particularly German ones: in a low growth environment, their stability offers valuable protection for diversifying a portfolio. Conversely, we are reducing our exposure to long-term US bonds, while the risk of a rate increase remains depending on the measures implemented by Trump.
On credit, Europe remains more attractive in a rate environment1 low and higher rate spreads. Concerning emerging debt, although the spreads are significant, performance will depend on American policy, particularly with regard to the dollar and customs duties.
-The central role of currencies
The American dollar appreciated by more or less 6% in 2024 compared to the Euro2. While a weak dollar would have supported the competitiveness of American businesses, the policies championed by Trump during his campaign should make it rise. This paradox could limit its appreciation potential. Currencies, at the heart of trade negotiations with the United States’ main partners, will remain under surveillance: an economic recovery in China could strengthen the Yuan, while the Yen could also appreciate in response to a stabilization of the dollar.
Diversification and alternative strategies
To diversify a portfolio, gold remains a key asset, even if it has been penalized by the strength of the dollar and increased interest in cryptocurrencies. Any drop in its price could offer opportunities. Certain alternative strategies, such as “market neutral” approaches, taking advantage of volatility, or “risk arbitrage”, focused on mergers and acquisitions, also deserve particular attention in 2025. The solutions managed by our teams should be able to to fully seize the opportunities of this environment.
Conclusion
The economic context finally seems to be returning to a certain normality, despite the uncertainties brought by the Trump administration. However, Trump’s sensitivity to financial markets could reassure, playing a role of safeguard against too extreme measures.
1Difference between the interest rate of a given loan and a reference rate for the same maturity.
2Source: Bloomberg.
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