Asset managers are in the process of making their predictions for 2025, where gold and artificial intelligence are high up on the agenda. What do experts predict for 2025? And which stocks will they be buying and selling over the year?
When making their predictions for 2024, many of the largest fund companies were hoping for a UK equity comeback, some thought the dollar had peaked, and most were excited about the outlook for bond markets.
Not all predictions came true. Plus, managers have had to navigate fewer rate cuts than initially expected, sticky inflation, elections and geopolitical tension, which will all influence expectations for the coming year.
What are the 2025 Fund Manager Predictions?
Nicolas Forest, chief investment office at Candriam, says that for the time being, US exceptionalism remains in place: “The economic divergence between the USA and Europe is expanding on all fronts.” That includes monetary, fiscal and regulatory policies.
State Street Global Advisors adds that the core theme of global geopolitics remains “geoeconomic fragmentation”. Elliot Hentov, head of macro policy research, says the 21st century “centers on power dominance, with technological superiority a key factor in enabling the dominant bloc to dictate the global economic and political order.”
US and AI Trends Will Power Equities
Starting with equities, most managers have high hopes for the US.
Georgina Taylor, head of multi-asset strategies, UK, at Invesco believes that the US Federal Reserve is likely to cut rates by less than financial markets are pricing in. Fewer cuts are particularly likely if the market reflates, as Fidelity predicts it could.
Niamh Brodie-Machura, co-CIO of equities at Fidelity, says even before November’s poll, the fund manager expected US corporate earnings to increase by 14% in 2025, beating most other regions and the global average in terms of growth, return-on-equity, and the level of net debt
“The election has fanned optimism in the market that the coming year will prove pro-business, pro-growth, and pro-innovation. Nevertheless, investors will have to be more discerning inwhere they look this year.”
AI Trends Could Broaden
BlackRock’s biggest overweight for 2025 is to US equities to capture gains from the AI theme and broadening earnings growth.
“Valuations for AI beneficiaries are supported by tech companies delivering on earnings. Resilient growth and Fed rate cuts support sentiment.” However, risks include any long-term yield surges or escalating trade protectionism, it says in its 2025 outlook.
Hugh Gimber, market strategist at J.P. Morgan Asset Management, agrees that the current valuation gap cannot persist indefinitely.
“If the broader AI ecosystem generates substantial revenues, other companies should see earnings catch up. Conversely, if AI technology doesn’t deliver transformative revenues, it will become increasingly hard to justify the megacaps’ valuations, and a ‘catch down’ scenario would occur.”
Matt Cioppa, portfolio manager and research analyst at Franklin Equity Group, adds that investors now have a rare opportunity to participate in the early stages of a new growth cycle, where patience could be rewarded as the full impact of AI unfolds. Plus, the energy intensity of AI would also open opportunities for nuclear investments, and a Trump administration set to cut red tape could accelerate innovation.
“While only a handful of tech giants can afford massive foundational investments, smaller firms can also thrive by building successful businesses on top of new infrastructure, much like Salesforce and ServiceNow did during the cloud computing boom. As AI infrastructure evolves, we will continue to edge from buildout into applications.”
Amundi, too, shares a similar sentiment. The company is neutral on US equities but bullish instead on investing in the US on an equal-weighted basis, avoiding the current concentration.
Lacklustre European Economic Growth
There seems to be consensus that overall, Europe and the eurozone economy will continue to battle with its stagnant growth, and with potential tariffs coming from the US, the region could feel particularly pressured. Fidelity highlights recent profit warnings among industrials and lacklustre returns from consumer names.
But there are still opportunities to be found if you are willing to dig regionally. Karen Ward, chief market strategist for EMEA at J.P. Morgan Asset Management, says European earnings forecasts are more modest than that of the S&P 500, but the pricing is more favorable, “suggesting that a significant degree of underperformance is already factored in”.
She adds that while tariffs from the US are likely, they are a more serious worry for China than for Europe.
JP Morgan Private Bank adds that European companies will continue to supply critical inputs to the AI value chain, infrastructure, aerospace and defence sectors. These companies provide alternatives for outsized positions in the US.
Are UK Stock Valuations Attractive?
Back in the UK, a change of government proved initially positive for markets, but optimism soon faded, as did economic growth. BlackRock has changed its outlook from slightly overweight to neutral, stating that while political stability could improve sentiment, an increase in corporate tax could hurt profit margins in the near term.
The Morningstar UK Index was up 10% year-to-date at the end of November. And, the UK market is more service-oriented than Europe, with smaller tariff-exposed sectors like manufacturing.
Henry Dixon, portfolio manager on the UK discretionary equities team at Man, also points to bright spots for the UK economy, with share buybacks at a record high, and soaring household savings.
“To prompt a change in behavior, we think further Bank of England rate cuts are key. Apart from lowering mortgage costs, it would signal that prices are becoming more stable. And that will go a long way to banish some of the gloom,” he says.
Adrian Gosden and Chris Morrison, investment managers of UK equity income at Jupiter, expect to see dividend growth from the companies they invest in, while corporate activity in the form of mergers and acquisitions can maintain a healthy pace.
“This reflects the low valuations of good companies as well as well as a stable economy and government. We would expect that overseas companies, trade buyers and private equity firms will want to do more deals to acquire UK assets at attractive premiums.”
That said, the Association for Investment Companies (AIC) points out that this is the third year straight that fund managers have tipped the UK as the region most likely to perform well over the coming year.
Big Hopes for Japan Equities – Again
On the other side of the world, Amundi, BlackRock and Fidelity all have conviction in the Japanese equity market. Fidelity writes in its outlook that the country “remains on track for reflation with strong wage growth, and capital expenditure and shareholder returns will increase steadily over time”.
One concern however is that a strong yen combined with higher interest rates could hurt earnings later in the year, especially in areas where overseas sales outweigh domestic demand.
State Street is wary about Japan, saying inflationary tailwinds may be fading, and that hawkish monetary policy and political uncertainty present new risks and could offset the positives that have largely been priced in.
“The expectation of higher bond yields and declining yen repatriation are also likely to put downward pressure on the equity risk premium, creating a shift in investor risk appetite to favor fixed income over equities, especially amidst Japan’s political transition.”
Could Emerging Markets Outperform in 2025?
Emerging markets has split asset managers in their outlooks. Amundi states that “EMs should outperform DMs,” and Goldman Sachs agrees that they provide a broad set of the opportunities found within equities.
In contrast, JP Morgan Private Bank believes “DM equities will outperform EM equities next year” due to challenges like the consumer confidence crisis in China. That said, markets like Taiwan, India, Indonesia and Mexico stand out across both public and private markets.
A Comeback for China’s Stock Market?
Allianz Global Investors calls China a “wild card” for 2025. Virginie Maisonnevue, global CIO equity, says: “While a good deal of investor skepticism about China remains, recent initiatives show regulators are actively easing fiscal and monetary policy and seeking to boost asset prices – a very different stance to just a few months ago.
JP Morgan Asset Management’s Hugh Gimber adds that the fact Chinese policymakers have shown they want to support the economy is “more important than the measures delivered so far”.
“But the effectiveness of their efforts remains uncertain, especially amid US hostility. Emerging market stocks are relatively cheap compared to global stocks, but investors must navigate regional disparities and shifting trade dynamics to capitalise on opportunities.”
This sentiment is shared by BlackRock, stating in its outlook that “China’s fiscal stimulus is not yet enough to address the drags on economic growth, but we think stocks are at attractive valuations to DM shares. We stand ready to pivot”.
Fidelity is finding Chinese opportunities in sectors high on the government agenda: technology, high-end manufacturing, consumer goods and healthcare.
India’s Economic Growth to March On
Goldman Sachs Asset Management holds the belief that India will remain a bright spot in 2025 with a profitable and diverse corporate universe capitalizing on digitalization trends, the continued growth of the middle class, a reform-oriented government and a solid economy.
“India has shown limited long-term correlation to previous US interest rate easing cycles, underscoring the more domestic and earnings-driven nature of India’s growth story. We see India as a potential beneficiary of the Trump administration among emerging markets.”
Allianz’ Maisonnevue adds that “India currently boasts several advantages which will enhance productivity across sectors in the coming years.”
Bonds Profit from Rate Cuts
Within fixed income, several categories would benefit from rate cuts, particularly higher income assets such as high yield credit and emerging market debt, according to Invesco’s Taylor. Local EM debt could also benefit from a move lower in the US dollar, she says, but highlights that a major factor will be how inflation unfolds in 2025.
Fidelity says defensive US dollar investment grade will provide shelter from recession risks. It adds that Asian high yield is an option for those attempting to “capture attractive carry and spreads compression”.
Goldman Sachs sees opportunities to ride the rate cut cycle, aiming to “capture income across corporate and securitized credit, and use a dynamic investment approach across sectors and regions.”
European investment grade corporate bonds are one of Amundi’s biggest convictions across all asset classes and markets. Meanwhile, BlackRock’s biggest underweight position is Japanese government bonds.
Central Banks Keep Buying Gold
With volatility across the board, there is no surprise that the outlook for alternatives – and gold in particular – is the standout asset class of 2025.
Candriam’s Forest explains: “Geopolitical uncertainties, combined with stretched valuations, will lead to a return of volatility and dispersion, which support active management. In this context, alternative investments offer diversified and uncorrelated solutions for investors.”
JP Morgan Private Bank adds: “We believe the US dollar is structurally overvalued. Gold is an efficient way to diversify currency exposure.”
Gold prices will also find continued support from central banks, particularly in emerging markets, which have been buying 1,500 tons more gold per year than their pace before Russia invaded Ukraine, according to JP Morgan. “The People’s Bank of China still only holds 5% of its reserves in gold relative to the ECB at 60% and the Federal Reserve (Fed) at 73%.”
Invesco’s Taylor agrees: “We believe commodities, real estate and where possible, other alternatives provide an important source of diversification while the correlation between equities and bonds is at risk of turning positive again.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
