Investment opportunities for 2025: what to consider

As we start the New Year, the world is awash with predictions for 2025. Rather than sharing our views on everything, we have kept it brief and highlighted our key economic view, plus two asset classes to invest in and two asset classes to avoid.

Our view in a nutshell 

For 2025, we expect inflation to remain above central bank targets in the west and in many other parts of the world; with China a notable outlier to this.  

Fortunately for investors, we expect real yields to remain positive as central banks are slower to cut rates in the face of that above-target inflation and expansionary fiscal policy. This is not universal, as we expect the Eurozone and China will continue to loosen monetary policy, and so expect divergence in interest-rates across the world. 

What to consider buying

Equities 

We are increasingly confident that equities can continue to deliver strong returns through 2025, albeit not at the 22% per annum (p.a.) returns seen over the last two years. However, it's important to remember that returns are not guaranteed, and the value of your investments can go up and down. While much concern has been raised over the concentration of the US stock market around the Magnificent 7, and such concern is not unfounded, we remain less concerned about this than others and so support a broadly global approach. We discuss navigating market concentration and investing your equity allocation more here. 

For the brave, UK investors could leave currency unhedged. This is a low conviction view on our part, as currency positions should always be, but if Trump is able to implement similar policies to those he’s suggested, combined with a slower rate-cutting environment from the Federal Reserve, this would likely support a strong dollar.

Floating rate 

This refers to global loans and European securitised assets. Whilst there is a bit more nuance to this regional view than space allows here, we favour floating-rate assets due to their higher spread than fixed-rate equivalents, typically less cyclicality, and a slow rate-cutting cycle in 2025.

What to consider avoiding

Chinese equities 

We have concerns about ‘Japanification’ of the Chinese economy. China is likely to be hardest hit by US trade tariffs - it has significant economic adjustments that it needs to make and a stock market that, while volatile, has traded sideways for more than a decade.  There could be small bouts of upside volatility on policy announcements (see September 2024) but overall, we would avoid.  

Office properties 

Globally, these are not yet out of the woods. There are long-term structural headwinds against existing buildings due to Energy Performance Certificate (EPC) requirements and uncertain demand around a return to the office.  Coupled with the fact we think base rates will be slower to fall in 2025 (more of a 2026 story), we think repricing will continue to happen as debt is rolled onto new, higher rates.

We said throughout 2024 that politics, despite half the globe going to the polls, wouldn’t cause as much market volatility as others expected - and it didn’t. Will our predictions be right (or lucky) two years in a row? 

Returns are not guaranteed, and the value of investments may go down as well as up, meaning you could get back less than you invest."

Disclaimer: This article is not intended to provide and must not be construed as regulated investment advice. Returns are not guaranteed, and the value of investments may go down as well as up, meaning you could get back less than you invest. For more information, see our legal notice.