LT Views Winter-2025-SINGLE-build08 - Flipbook - Page 6
A FORWARD
LOOK
Outlook
We believe 2025 can be another positive
year for equities following a strong 2024.
Global stock markets’ rises last year was led
by the US’ S&P 500 – which was up more
than 20% for the second consecutive year –
and Japanese equities finished at their best
year-end level in over three decades.
We view inflation as being a long-term
structural phenomenon. It will be higher, but not
necessarily high, in the years to come: the low
inflation and interest rates seen between the
Global Financial Crisis and the Covid years
were highly unusual. We believe the levels we
are seeing now – in the 2%, 3% and 4% – are
more akin to “normal” in a historical context.
Bonds were also positive in 2024, albeit less
so than equities. The extent of interest rate
cuts in 2024 was some way short of market
expectations at the beginning of the year,
which lessened the gains for them globally.
We are broadly neutral on the outlook for
bonds, although we are positive on global
high yield and investment grade corporate
bonds and these sub-asset classes delivered
solid returns over 2024.
The one area that governments must grapple
with is economic growth. The US is looking
steady, but there needs to be improvements
elsewhere, such as the UK, Europe and China.
We remain positive on financial markets
overall because we see a global economy that
on balance remains relatively buoyant: inflation
has fallen, unemployment is low, consumers are
still spending and, consequently, companies
are generating reasonable revenues.
Those key drivers of markets we highlighted
at the start of 2024 are still in play. They
include multi-polarity: a diverse and
diverging world, whether it be in terms of
inflation, interest rate policy or growth and
both domestic and international politics.
6
LIONTRUST VIEWS – WINTER
A look forward must also consider the
implications of Donald Trump as US president
after his victory in November. It spurred a
rally in US equities in the fourth quarter of
2024 on expectations that his policies would
lift economic growth and bring lower taxes
and less regulation. His outspoken style will
probably bring more volatility to markets, but
we focus on long-term fundamentals above
short-term sentiment.
Diversification is key
This positive view is caveated by the fact that
we believe investors should seek diversification
given the current environment including the
fact that stock markets were mainly driven
by just a handful of mega cap stocks. At the
start of 2025, the top 10 stocks accounted
for about a third of the US index, which itself
has grown to about 70% of the global stock
market. It is not a given that stock markets will
continue to do well in perpetuity after a year
in which they have performed so well, nor that
the US will continue to be the main driver of
returns in 2025.
There is attractive value to be found outside
of the US mega caps, including among
US smaller caps, Japan, the UK, Asia exJapan and emerging markets. Therefore, we
believe diversification will benefit investors.
Asset class outlook
When we are positive about an asset class,
we categorise it as ‘overweight’ and may
look to increase our target allocation to it in
our portfolios.
Conversely, when we are negative about an
asset class, we classify it as ‘underweight’
and may reduce the target allocation.
Finally, ‘neutral’ means that we are neither
positive nor negative.
In our fourth quarter of 2024 Tactical
Asset Allocation (TAA) review, we reduced
our outlook ranking for European equities
(although we maintained our ranking for
European small caps at neutral).
