Investment Monthly
Still spinning around
06 March 2025
Key takeaways
- Markets could face a volatile ride in 2025, albeit against a broadly constructive backdrop of no recession, further rate cuts, and resilient profits
- US dollar weakness may reflect policy uncertainty, and could boost the appeal of emerging market local currency stocks and bonds
- Our baseline macro scenario could see market performance ‘broadening out’ to laggard sectors and regions
- Diversification into alternatives such as hedge funds, private credit, and defensive real assets can build portfolio resilience to episodic market volatility
Macro Outlook
- Our baseline macro scenario is for trend-like growth in major economies, inflation declining towards target, and gradual policy easing
- Quantitative measures of global policy uncertainty have spiked, posing potential growth headwinds, but we do not expect material US weakness
- In China, further demand-side stimulus, efforts to stabilise the property sector, and structural reforms to rebalance the economy support the outlook
- We expect resilient economic growth, benign inflation and more growth-friendly macro policies for most parts of Asia in 2025
Policy Outlook
- Further US rate cuts are likely in 2025, but policymakers may wait until mid-year before doing so, and proceed cautiously thereafter
- Post-election coalition negotiations in Germany could lead to amendments to the country’s “debt brake”, which may result in looser fiscal policy
- We expect most Asia ex-Japan central banks to ease monetary policy opportunistically whilst staying vigilant of potential FX volatility
- Chinese policy support – including liquidity, fiscal/credit, structural measures – can boost the economy out of the deflation trap