Capital markets: what international prospects in 2025?

The international diversification of stock markets remains a necessity.

This comes as a surprise to many investors: but even in 2024, as the year draws to a close, international stock markets have withstood the many geopolitical and economic pressures around the world. In our opinion, one rule will prevail for the coming year: equity investors will not be able to ignore US stocks in 2025 either. In our opinion, ten theses best summarize how we should approach global financial markets in the coming months:

1. Volatility in financial markets will increase in 2025 in the wake of geopolitical risks. International diversification is therefore essential. The level of volatility in the stock market is currently unusually low. Also in 2025, investors should show interest when volatility increases and others become afraid.
2. Stock markets are sometimes highly valued. But there is no reason to think that a speculative bubble has formed. Positive stock performance in 2024 was driven by a small number of large market capitalization technology stocks. The extreme concentration of the stock market constitutes a major risk in 2025 and also argues in favor of broader diversification.
3. In 2025, stock investors should not bet on short-term bets, but opt ​​for long-term commitments in the stock markets. Those who invest in stocks for the long term benefit from the effect of compound interest, which Einstein once called the “eighth wonder of the world”, and from the fact that the risk of loss of stocks decreases with the length of the investment period. ‘investment.
4. Careful stock selection remains the rule also in 2025. We favor investments in long-term growth trends such as artificial intelligence and transformative medicine. In 2025, we advise investors to invest in companies that offer high returns on capital, have clear competitive advantages, are structurally growing in revenue and trade at a reasonable price on the market. .
5. The American equity market remains structurally attractive. The main arguments for Wall Street engagement are that returns on equity for US companies exceed those of Germany and that long-term potential growth and labor productivity are significantly higher in the US than in Germany. ‘in Europe.
6. We believe that the Chinese equity market will remain unattractive in 2025. The Chinese economy is suffering from a real estate crisis, overindebtedness of local governments and excessive intervention by the communist government. We will reconsider our negative stance on China when lasting policy reforms and a faltering consumption recovery take shape in the world’s second-largest economy.
7. Small and mid caps still deserve our attention for the year ahead. In recent years, investors have focused heavily on a small number of stocks. We expect the valuation gap between previous years’ favorites and small and mid-caps to narrow again next year.
8. The yield curve is expected to steepen in 2025. In the United States in particular, President-elect Donald Trump’s economic program is expected to lead to an increase in capital demand, public debt and government bond risk premiums. long term. At the same time, we can expect further interest rate cuts by the Fed and the ECB in the short term. We expect the European Central Bank to cut its key rates more in 2025 than the US Federal Reserve.
9. Rising long-term bond yields should contribute to the emergence of attractive investment opportunities in the bond markets, including in the investment grade category. Holders of short-term investments will only be able to reinvest their capital at a lower interest rate, as short-term interest rates are expected to fall in 2025 in our view. Interest rates on investment grade investments remain attractive and the level of debt of investment grade bond issuers is currently relatively low in historical context.
10. An investment in Private Equity should be considered by some investors. For investors who can lock in part of their portfolio for the longer term, diversifying into stakes in unlisted growth companies may be attractive.