Schroders’ top 10 market predictions for 2025: Recession, re-set or re-acceleration?
Favours US equities, Asian credit and private market assets
As the world looks ahead to 2025, Schroders anticipates a resilient global financial market landscape continuing to offer support for risk assets in general, but particularly for US equities, where performers within the market breath are expected to broaden. At the same time, a diversified investment strategy, including considering allocation to Asian credit and private assets, is likely to be helpful to investors in navigating this complex environment and capturing potential returns, said Keiko Kondo, Head of Multi-Asset Investments, Asia at Schroders, as she unveils the firm’s “Top 10 predictions” for financial markets in 2025.
Global economy: More good news than bad
Following strong performance in the second half of 2024, the US economic growth outlook continues to look rather positive, especially in terms of consumption and the labour market. While concerns about US consumer confidence previously raised doubts about the US economy, recent data has eased these worries. Total US consumer savings are still high at nearly US$20 trillion, and blowout payrolls data is expected to continue to support consumer spending.
Keiko Kondo said:
“Even though inflation remains under control, the path for the US Federal Reserve (Fed)’s rate-cutting timeline and scale remains uncertain, although a more aggressive stance has been priced out. Nonetheless, as the US yield curve normalises and enters a policy loosening cycle, prospects for the global stock market looks favourable.”
As for Europe, Kondo’s view is that after the European Central Bank (ECB) is now “data-dependent" following its three rate cuts this year. Recent economic data such as deteriorating new factory orders in Germany in August has fuelled concerns of a prolonged slump in the region. With 2025 on the horizon, the Eurozone is expected to continue reducing interest rates against weaker economic growth whilst inflation is believed to remain under control.
Equities: Optimistic about US; prefer Asian and emerging-market (EM) equities over Europe
In the US, headline inflation has fallen below 3%, and the economy is seen as experiencing a “soft landing”, paving way for a sweet spot for equities, according to Kondo, who favours broad-based exposure to US equities. While economic and earnings growth in Europe has slowed, the versus has been seen in EM and Asia, providing an appealing entry point for the two regions.
Bonds: Prefers European government bonds, Asian credit and emerging-market (EM) local-currency bonds
Government bonds rallied strongly during market corrections in the summer months, confirming the return of their characteristics as safe-haven assets. While bonds are likely to have a bigger role to play as a diversifier in investment portfolios going forward, European government bonds, which are expected to benefit more from an anticipated rate-cutting cycle, appear attractive as a means to diversification.
“In Asia, robust economic growth – especially in China, India, and Indonesia – is likely to drive the performance of Asian credit, which are set to provide more attractive spreads than similar bonds from US and Europe. Furthermore, many emerging-market local currency bonds can offer favourable yields and thereby suggesting promising returns in 2025,” said Kondo.
Diversify asset allocation via private market assets
Private market assets have gained prominence among investors globally and in Asia in recent years, a trend that Kondo supports. She points to the benefits of including such assets, a key feature for which is lower correlation to other asset types, in a multi-asset investment portfolio. For example, private equity has shown higher yield spreads than non-investment grade (IG) bonds.
Schroders’ Top 10 predictions for 2025 |
|---|
1) Long broad US equities (S&P 500 equal weighted) |
2) Long 2-year and 10-Year Treasuries |
3) Long European government bonds |
4) Long US dollar vs. Euro |
5) Long emerging-market (EM)/ Asia vs. European equities |
6) Long Asian credit |
7) Long EM local currency bonds |
8) Short oil |
9) Long gold |
10) Long private market assets |
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