2025 January Market Outlook: Strategies for Navigating a Shifting Global Landscape
In our previous update, we briefly shared our outlook for 2025, and we maintain our view that market risks will be driven by three key factors: the uncertain interest rate trajectory in the US, elevated US equity valuations in the sectors that we monitor and heightened geopolitical risks globally. These factors are likely to result in higher volatility in equity markets compared to recent years. However, this does not mean that equity prices will drop precipitously. Instead, we simply believe a more cautious approach to positioning and stock picking is warranted.
The US equity market has benefited from the strength in its economy and leading position in artificial intelligence (“AI”) technologies. This has led to high earnings expectations being baked into stock valuations, which we find to be optimistic given the looming risk of tariffs and the ongoing cooling of the general economy. Some argue that the Trump administration will reduce corporate taxes to boost earnings and control interest rates despite inflation risks. Our view is that timing all these initiatives to benefit the US economy will be challenging and there will likely be knee-jerk reactions to any significant policy announcements, earnings misses and economic data surprises.
For ASEAN countries, while the “China + 1” narrative is beneficial, they may not be spared from US tariffs as Trump announced his attention to impose tariffs on close allies such as the EU and Canada. Additionally, recent US technology export regulations were tightened, and none of the ASEAN countries were included in the list of “US allies” who were granted unrestricted access to advanced semiconductors.
In other developed markets such as major EU countries and Japan, we believe that their economies are still struggling to pick-up meaningfully. Coupled with the ongoing geopolitical environment, we will continue to be selective in increasing exposure to these regions.
Among the countries we monitor, we believe that China could be a bright spot in 2025, provided the administration acts strongly and decisively. They have announced ambitious goals to stimulate the economy with no concrete actions yet, in our view. We will be monitoring their key policy meetings for actionable plans before significantly increasing our weighting in the region.
