After a strong performance in November driven by the re-election of Donald Trump, US equities remain one of our key convictions.
Key Takeaways
Macroeconomics
The outlook for global growth in 2025 remains positive at around 3.2%, supported by reflationary policies taking shape in the US following Trump’s victory.
Asset allocation
Aligned with our long-term global macroeconomic outlook, we remain confident that global equities, hedge funds, and precious metals will be key drivers of performance in the years ahead.
Equities
For 2025, we expect global equities to deliver moderate positive returns following valuation adjustments. US equities remain our strategic preference, driven by solid growth prospects in the technology sector, particularly in AI infrastructure. In Europe, we favour a selective, bottom-up approach, and we have downgraded UK equities due to political and economic headwinds.
Fixed income
We have reduced the exposure to fixed income, where we focused on short-duration and high-carry opportunities; we have added agency mortgage-backed securities as a diversification tool.
Editorial
New dynamics in 2025
The S&P 500 ended November with its strongest gain of the year, buoyed by the re-election of Donald Trump. As he nominates his cabinet members, it has become clear that his second term would take a different path from his first; rather than a mere replication, his choice of governing team signals the beginning of a new chapter in the transformation of the US economy, and perhaps even beyond.
Trump’s pledges of tax cuts and pro-business regulations should continue to support US equities which remain one of our main convictions. This backdrop is particularly advantageous for US-based companies engaged in artificial intelligence, as well as for US mid-cap stocks currently trading at attractive valuations.
However, this new political era is likely to spark uncertainty. Trump’s unpredictability might exacerbate volatility across all asset classes. Moreover, his ambition to ‘make America great again’ through pro-US policies might drive a resurgence in inflation, push bond yields higher, and elevate terminal federal fund rates. Should these scenarios materialise, we are well-positioned to manage any resulting convexity.
Beyond the US, the global economic landscape in 2025 will continue to be increasingly fragmented. In Asia, India is poised to maintain its strong momentum, contrasting with China which continues to be an unpredictable market. Key appointments in the Trump administration indicate a firmer stance on China, suggesting that the tariff-driven policy of Trump’s second term may become even more assertive, necessitating a broader response from Chinese authorities. Similarly, the eurozone is displaying signs of increasing divergence, highlighting the appeal of more stable and resilient markets such as Switzerland and Scandinavia.
Strategy
Trump 2.0: move fast and break things
With US President-elect Donald Trump having nominated his cabinet for his second term, it is evident that Trump 2.0 will not replicate his first term; rather, it marks the next chapter in the reshaping of the US economy and world order that began in 2017.
Overlooking former US Trade Representative Robert Lighthizer – the architect of tariff policies during Trump’s first term – was one of the most surprising decisions. Coupled with the inclusion of Scott Bessent, who views tariffs primarily as a ‘negotiating tool’, this reduces the likelihood of broad global tariffs early on in Trump’s second term. Instead, tariff policy is likely to focus on pressuring Mexico and Canada for concessions ahead of the 2026 renegotiations of the United States-Mexico-Canada Agreement.
However, tariffs on China fall into a different category. The nomination of so-called China ‘hawks’ as Secretaries of State and Defense as well as the National Security Advisor, highlight that the tariff focus might be more wide-ranging under Trump 2.0, likely requiring a multi-pronged response from Chinese authorities in 2025.
Robert Kennedy Jr.’s nomination to lead the Trump health agenda could disrupt ‘big food’ and ‘big pharma’ as he shifts the regulatory landscape in both arenas. However, slim majorities in Congress and other more pressing Trump legislative priorities will likely limit the timing of large-scale changes to beyond 2025.
In contrast, Thomas Homan, Trump’s nominee to lead Immigration and Customs Enforcement, looks set to disrupt the flow of illegal immigrants into the US, the numbers of which have swollen the labour force and kept wage growth in check in recent years. This may create a comparatively less recognised catalyst to inflationary pressure should deportation programmes take shape under the new Trump administration in the new year.
Elon Musk and Vivek Ramaswamy, advisors to Trump’s Department of Government Efficiency (DoGE), have outlined a target to find USD 500 billion in federal budget savings annually. While a substantial sum, if achieved, this represents only 25% of the estimated 2024 budget deficit and only 7% of overall federal spending. Indeed, reaching half a trillion dollars in savings would itself be impressive, given that the bulk of these reductions would likely have to come from ‘discretionary’ government spending, which totalled just USD 1.7 trillion in 2023.
Combined with Treasury Secretary nominee Bessent’s focus on fiscal sustainability, the prospect of an aggressive and creative reallocation of US government spending looks to be on the agenda in Trump’s second term.
Although less than two months remains before President-elect Trump is sworn in and the prioritisation and detail of the Trump 2.0 agenda remains unclear, what is unambiguous is that the nominees to the new Trump administration are being tasked with changing the American status quo within the historical operating framework of the world largest economy, along with how the world’s superpower interacts – financially, commercially as well as from a national security perspective – with allies and adversaries alike.
With only four years in Trump’s final term as President and only two years of assured Congressional majorities, America’s 47th President looks set to mimic Silicon Valley’s famous ‘move fast and break things’ mantra as the new administration seeks to attempt to reshape the US and world order.
For investors, the likely potentially rapid pace of change should bring not only opportunities but also risks, favouring active rather than passive investment strategies, resilient corporates which can weather such rapid transformation, as well as increased exposure to anchors – such as gold and hedge funds – to contain what is likely to be frequent bouts of volatility as these changes are rolled out.
