Major trends supporting asset values
Despite warfare in Ukraine, the Middle East and Sudan, and a large number of political elections taking place in over 70 countries with more voters in history casting their ballots in 2024, the related uncertainty did not derail financial asset values. Almost all asset classes delivered positive returns for investors in 2024, thanks to impressive gains in stock markets and precious metals. Moderate economic growth around the world, combined with inflation returning close to central bank targets and steady reductions in benchmark interest rates, provided a rare Goldilocks macroeconomic backdrop, allowing for stable growth in profits, income and values.
Challenges for 2025
What must investors bear in mind in 2025? The refinancing of record sovereign debt burdens will become a big issue given the rising interest cost burden on national budgets. This factor could weigh on longerterm bond yields, holding back bond performance, even with benchmark rates falling. Secondly, the expensive valuation of US large-cap stocks at nearly 22x P/E following the impressive performance of the Magnificent 7 technology stocks could weigh on stock market performance if earnings momentum slows. US corporate bonds are also expensive by historic standards, judging from current record-low credit spreads over sovereign bonds. Ultimately, global liquidity will play a crucial role in determining the performance of financial assets in the year ahead, led by the actions of central banks. Lower interest rates will help boost liquidity and loan demand. However, a key factor will be the conversion of elevated household savings rates out of cash into more economically-productive assets, particularly in China and Europe.
Key trends to watch in 2025
We believe that there are a select few trends that investors should keep front of mind in the new year:
- Lower interest rates: a reversal of many of the steep interest-rate hikes in 2022-2023 will support leveraged asset classes, such as real estate, infrastructure and private equity. Cyclical stocks should gain from increased investment rates.
- Energy infrastructure upgrades: the energy transition and Artificial Intelligence-related investment are driving the requirement to upgrade both electricity generation and transmission capacity around the world.
- Diversifying away from record US concentration: US large-cap stocks represent a historically-high percentage of the global stock market, and stock and bond markets are increasingly moving in sync. Investor portfolios need greater diversification by asset class and geography.
- The AI investment wave: hyperscalers like Amazon are investing massively in data centres amid the AI “gold rush”. We focus on those companies that can benefit from this near-term investment wave, as well as the non-tech sectors that can put AI models to profitable use today.
- Healthy longevity: dramatic advances in new treatments for age-related diseases, improved diagnostic tests and a longer working life present new investment opportunities.
We invite you to go further by reading the publication on our five annual investment themes.
A sneak peek behind the scenes!
The video takes us behind the scenes of the investment strategy team’s annual seminar.
Over two days, BNP Paribas Wealth Management’s strategists from Hong Kong, Singapore, Germany, Belgium, Luxembourg, Italy and France gathered in Paris to discuss three main topics: the key macro & financial market trends to follow over the next 12 months, the potential risks, and last but not least, the five key investment themes for 2025 based on their strongest convictions.
