LT Views Winter-2025-SINGLE-build08 - Flipbook - Page 7
UNITED STATES
STOCKS*
EMERGING MARKETS
STOCKS
BONDS
US stocks led global equities higher in
the fourth quarter. Donald Trump’s election
victory, together with the Republicans’
sweeping control of congress, fuelled
the equities rally by raising the belief that
lower taxes and less regulation lay ahead.
However, the gains were pared in December
when the Federal Reserve, which had cut
rates twice during the quarter, adopted a
more hawkish stance for 2025 because of
stubborn inflation and the strong economy.
US government bonds (Treasuries) fell
significantly
alongside
other
global
government bonds on the Fed’s more
hawkish outlook for interest rates this year,
even though it cut rates twice during the
fourth quarter.
UNITED KINGDOM
BONDS
The prospect of US tariffs weighed on
emerging markets (EMs). The region’s
equities fell significantly in dollar terms,
but the decline was less when converted
to sterling. Over 2024, however, EMs
delivered double-digit gains in sterling
terms, having rallied over the first three
quarters of the year.
EM debt (EMD) fell over the quarter, but not
as severely as bonds in developed markets.
A strengthening dollar will make it more
difficult for EM sovereigns and companies
to service debt that is issued in US dollars.
STOCKS
BONDS
UK equities declined slightly in the fourth
quarter. We have a positive outlook on
UK equities, which we believe remain
significantly undervalued. The government’s
Budget at the end of October raised
concerns over how strong the market
appetite would be for a £28 billion annual
increase in government borrowing. Gilt
yields rose over the fourth quarter, putting
pressure on capital values. We believe gilts
offer the prospect of delivering inflationbeating returns over the medium term
as the inflationary spike abates, but our
sentiment towards them remains neutral.
We are positive on UK corporate bonds,
however, because we believe their yields
are attractive on a risk-adjusted basis.
*Small caps overweight.
KEY
Overweight
ASIA PACIFIC
EUROPE
STOCKS*
Underweight
BONDS
Europe ex-UK was the poorest-performing
major stock market in the fourth quarter in
sterling terms. We reduced our ranking for
European equities from a neutral three to
a negative two. Europe is going through
an economic slump, and we believe the
risks are increasing. Germany’s economy
is struggling, there is trade friction with
China and a Trump presidency has raised
the prospect of tariffs. German federal
elections have been brought forward to
February 2025 after the collapse of the
ruling coalition, while France faces months
of political instability following a national
budget crisis. European liquid high yield
was one of the few bright spots in fixed
income globally in the fourth quarter,
delivering a low single-digit return.
STOCKS
Asia Pacific ex-Japan equities slipped over
the fourth quarter after having been the
best-performing major equity region for
two consecutive quarters. Asia will benefit
from the reflation trade and loose monetary
policies. It is also looking cheap compared
to several other equity markets. A weaker
US dollar would help provide a supportive
environment, but the ‘Trump trade’ has so
far strengthened the US dollar. The stronger
dollar will make it harder to service debts
issued in dollars, while US tariffs could also
reduce demand for China’s exports. There
are, however, already several tariffs in
place on China so it is more a difference of
degree rather than a difference of principle.
Neutral
JAPAN
STOCKS
Japanese equities were higher in both yen
and sterling terms over the quarter, reaching
their best year-end close since 1989. A
weak yen has boosted the attractiveness
of Japan’s exports after company share
buybacks and corporate earnings hit
an all-time high in the third quarter. The
Bank of Japan also refrained from raising
interest rates at its December meeting, with
Governor Kazuo Ueda toning down the
hawkish comments he delivered in July. We
have kept our positive tactical outlook rating
on Japanese stocks, including small caps.
The country is in an inflationary environment
for the first time in a couple of decades that
should encourage more consumption.
*Small caps neutral.
Past performance is not a guide to future returns
LIONTRUST VIEWS – WINTER
7
