Will the US Federal Reserve deliver a soft landing?
So far, the signs are promising, but history shows that a hard landing often follows what initially appeared to be a soft landing. For now, the market has priced in a soft landing. Our investment decisions are not predicated on either scenario; instead, we focus on companies with resilient earnings, strong margins and robust balance sheets that we believe can perform well regardless of economic conditions.
Is China investable again?
China’s investability is a complex topic. While recent government stimulus gives reason for optimism, the market has been somewhat disappointed by the pace of progress. External factors, such as geopolitical tensions, add complexity to the outlook. However, from a bottom-up perspective, we still see opportunities in specific companies that can perform well based on their unique drivers, rather than relying on macroeconomic dynamics. Governance issues and political unpredictability make us cautious, but we do not consider China uninvestable. We have a China-listed holding and we have holdings in stocks that should benefit from any recovery in the Chinese consumer.
US election result: what does this mean for markets?
The US election results have already affected the markets, with domestic US stocks benefiting from anticipated tax cuts and deregulation. The US dollar has strengthened and emerging markets have weakened owing to perceptions around President-elect Donald Trump’s proposed policies. The market has priced in higher interest rates for a longer period, but the future remains uncertain. The lack of clarity about the make-up of the incoming administration adds an element of volatility, making forecasting particularly challenging.
We focus on companies with resilient earnings, strong margins and robust balance sheets that we believe can perform well regardless of economic conditions.
US equity market leadership: outperformance to continue?
US equity market valuations are higher than those in other regions, and while the outperformance of US stocks may continue, the magnitude is unlikely to be as big in 2025. The strong performance of technology companies, particularly the ‘magnificent seven’, has dominated the market. However, other sectors that have underperformed may start to show positive earnings growth if the US economy continues to strengthen. As such, we could see a more balanced market performance in 2025.
AI-related spending: will the investment pay off?
Artificial intelligence (AI)-related spending has been a significant focus for major companies, particularly the hyperscalers (large cloud-service providers), which are investing heavily in this technology for the long term. The market is beginning to recognise the high capital expenditure costs associated with this and while the potential for AI to drive business strategy and create new opportunities is substantial, we may face a hiatus where new supply exceeds demand in the near term. Different companies will benefit in various ways, from top-line growth to cost reductions and new product offerings, but after such a strong run, we are likely increasingly to see a divergence between the winners and losers within the area.
Where do you see the most interesting opportunities?
The most interesting opportunities lie in companies that can harness their unique strengths and adapt to changing market conditions. This includes those with strong balance sheets, resilient earnings, and the ability to innovate and capitalise on new technologies like AI.
The industrial sector is poised for growth as companies invest in automation and advanced manufacturing technologies. The push for sustainability and the transition to green energy are driving demand for innovative industrial solutions. Companies that can adapt to these trends and offer efficient, environmentally friendly products and services are likely to see significant opportunities.
The health-care sector continues to present compelling opportunities, particularly in medical technology and health-care services. The industry is recovering from pandemic-related disruptions, and there is a growing demand for advanced medical devices and innovative health-care solutions. Companies that can address the challenges of an aging population and the increasing prevalence of chronic diseases are well positioned for growth. The shift towards personalised medicine and the integration of AI in health care is also creating new avenues for investment.
Authors
Louise Kernohan
Head of Global Opportunities
Georgina Gregory
Portfolio manager, Global Opportunities team
This is a financial promotion. These opinions should not be construed as investment or other advice and are subject to change. This material is for information purposes only. This material is for professional investors only. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell investments in those securities, countries or sectors. Please note that holdings and positioning are subject to change without notice. MAR006850 Exp 11/29
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