{"id":41835,"date":"2025-01-22T21:29:57","date_gmt":"2025-01-22T21:29:57","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/investing\/investonline-2025-market-outlook-investonline\/"},"modified":"2025-01-22T21:29:57","modified_gmt":"2025-01-22T21:29:57","slug":"investonline-2025-market-outlook-investonline","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=41835","title":{"rendered":"Investonline 2025 Market Outlook | Investonline"},"content":{"rendered":"


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2024 can be marked as a year of geopolitical turmoil. From Donald Trump\u2019s re-election as president, the UK\u2019s choice of the Labour party, the ousting of France and Germany\u2019s leaders, a GNU formed in South Africa, to the terrible wars in the Middle East and Ukraine. Yet, investment markets continue to hit record highs globally and locally. So, are these political changes positive for investors or are other significant factors driving market attractiveness?<\/p>\n

Global investment markets start 2025 at an all-time high, and with a wide divergence in market valuations, which makes the outlook challenging. There are areas of high risk, such as US equities, tech. shares and cryptocurrencies, and areas of attractive opportunity, such as emerging market equities and bonds, including China and especially South Africa.<\/p>\n

MSCI All Country Equity Index<\/strong><\/h4>\n

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South Africa Equity Index in Rands and US Dollars<\/strong><\/h4>\n

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Huge disparity in country valuations<\/strong><\/h4>\n
Global P\/Es per country<\/strong><\/h5>\n

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A divergence in P\/E (price-to-earnings) valuations is justifiable, but the size of the spread is abnormal, evidenced by the US and India at 26.5 and 24.2 compared with SA and China at 12.3 and 9.2 respectively.<\/p>\n

The size of your future investment return is often based on the entry point (high or low) of your investment. The graph below shows the future 10-year returns from different P\/E entry points. Historical data suggests that entering the US market at today\u2019s high valuation will result in zero returns over the next decade. This is singularly due to entering the US market at a high valuation level.<\/p>\n

High P\/E valuations translate to low long-term returns<\/strong><\/h4>\n

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Currently, the US comprises 70% of the global equity market, with the \u201cMagnificent Seven\u201d accounting for a staggering 20%. Excluding the expensive US market, the rest of the world trades at a forward P\/E of 13.3x. With the beginning of a declining interest rate cycle likely to stimulate economic growth, the global equity market excluding the US looks reasonably priced.<\/p>\n

MSCI All County Index (ex US) forward P\/E ratio<\/strong><\/h4>\n

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AI (Artificial Intelligence) the main investment theme of 2024<\/strong><\/h3>\n

AI emerged as the dominant investment theme of 2024. Any company that could be associated with AI had its share price rocketing up. Most notably Nvidia, the manufacturer of specialised AI chips.<\/p>\n

Nivida and Cisco share prices<\/strong><\/h4>\n

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Warning bells should be rung \u2013 the run in this new \u201chot sector\u201d will come to an end. Although the new technology is here to stay, the \u201ceye-watering\u201d valuations are very difficult to justify.<\/p>\n

A stark reminder takes us back a few decades, when in 2000, the spike in the Cisco share price on the back of the start of the internet, resulted in a subsequent collapse from which it has taken 25 years to recover.<\/p>\n

2025 will be all about Trump<\/strong><\/h3>\n

The likelihood of 2025 being all about Trump is real; brace yourself for a potential wild ride. This does not mean everything is a sell, as there are many attractive investment areas. However, it does mean that \u201cmarket noise\u201d will be elevated, fuelling uncertainty, and consequently, promoting volatile investment markets.<\/p>\n

Trump has a very tough balancing act<\/strong><\/h3>\n

Deregulations, tax cuts, tariffs, immigration, curbing government spending and omnipresent global political posturing remain on the cards. Each holds varying degrees of positivity and negativity for the US and global economy, and investment markets.<\/p>\n

But it\u2019s all about Trump and the legacy he wants to leave, which is a strong US economy represented by good growth with the bonus of a strong stock market. Accordingly, anticipate that all his actions and policy changes will be focused on these outcomes.<\/p>\n

Large tariffs and significant immigration cuts are likely to be inflationary and will drive higher interest rates, which are detrimental to economic growth. Conversely, deregulations and tax cuts will stimulate economic growth, although reduced government spending will slow growth and temper inflation.<\/p>\n

We believe Trump will adopt a more discerning approach to his actions compared to his rhetoric. Four years is a relatively short time for an economy to adapt and benefit from some of his more radical proposals, such as high tariffs. However, we anticipate that Trump will ultimately have a net positive impact on the US and global economies. It is likely he will primarily use his radical policy changes and views as leverage to negotiate stronger positions for the US on the global stage.<\/p>\n

Globally, economies are at a crossroad<\/strong><\/h3>\n

An abnormally resilient US economy, a Chinese economy battling to grow its consumer spending, Europe and UK economies in dire need of reform to grow and Emerging Market countries waiting for a return of meaningful foreign investment appear to be the order of the day.<\/p>\n

The US economy has been resilient in this higher interest environment with inflation not declining as expected, which is partly due to high government spending that has propped up the job market. This spending is likely to be curtailed soon. The market view has recently changed to US inflation staying higher longer, which has seen bond yields rise sharply indicating that the interest rate cutting cycle could be paused in 2025. This is not good for US equities. The market is currently pricing in two 25 basis point cuts in 2025 and 2026.<\/p>\n

The crossroad is, will higher projected interest rates undo the resilient US economy, leading to a market correction? This could lead to changes in global equity strategies given the significant valuation disparities across sectors and countries.<\/p>\n

Geopolitical tensions remain high<\/strong><\/h3>\n

The widening global East \u2013 West factions continue, fuelled mostly by a strengthening China, in our opinion. Hopefully Trump can reduce tensions and return some rational economic fair play that will not only benefit the US, but other markets too.<\/p>\n

SA\u2019s economic and investment prospects are good<\/strong><\/h3>\n

After the positive election result last year, the new GNU (government of national unity) has remained intact and appears functional. Part evidence is the positive progress with Operation Vulindlela where most of phase 1 has been completed.<\/p>\n

Key to SA\u2019s improvement is the GNU\u2019s continued existence with the ANC and DA maintaining a working relationship. However, top of mind for investors, is who is going to succeed Ramaphosa at the ANC. Currently there appears to be no obvious candidate.<\/p>\n

Economic growth should do better than expected \u00a0<\/strong><\/h3>\n

Despite ending the year with a disappointing decline in the PMI (purchase managers index), the economy is poised to grow more than the average forecast of 1.7% p.a. for 2025 and 2026.<\/p>\n

Firstly, business and discretionary retail confidence are at near 10-year highs going into 2025.<\/p>\n

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Secondly, the lack of growth over the last 10 years means the economic base is low and small improvements can translate to much bigger gains such as:<\/p>\n