The investment landscape is evolving as the global economy stabilizes. Investment strategies are now focusing on sectors that are expected to experience growth.
According to Mark Haefele, chief investment officer at UBS Global Wealth Management, technology, utilities, and financial sectors will be important in the coming years. Haefele also suggests that Asia ex-Japan equities and eurozone small and mid-cap stocks offer significant value opportunities. This aligns with the trend of investors looking beyond traditional markets to capitalize on emerging growth areas.
April LaRusse, head of fixed income investment specialists at Insight Investment, notes that investor demand has compressed spreads in investment-grade credit. While absolute yields have decreased, they remain relatively high compared to the last decade. Some investors are adopting a wait-and-see approach, anticipating a widening of spreads before increasing their allocations. LaRusse argues that this cautious stance may overlook the potential for active managers to enhance returns through strategic credit selection and duration management.
Artificial intelligence (AI) is expected to be a dominant theme in equity markets through 2025, according to BNY Investments and UBS Global Wealth Management. The anticipated easing of US Federal Reserve policies is likely to create favorable conditions for active fixed income strategies. Aninda Mitra, head of Asia macro and investment strategy at BNY Advisors Investment Institute, points to the potential for European growth to gradually improve, driven by increased consumption spending and supportive monetary policies from the European Central Bank. Mitra also anticipates a stabilization of demand in China, supported by policy support measures. However, she cautions that any recovery in Europe and China remains fragile and vulnerable to confidence shocks. Mitra maintains a cautious outlook, favoring sovereign fixed income and suggesting a neutral stance on equities due to stretched valuations in certain sectors.
Brian Blongastaine, global investment strategist at Newton Investment Management, foresees a continued rise in global equities over the next few years. He highlights the significant role of AI in propelling growth across multiple sectors, with the US and India expected to lead in economic performance. Blongastaine notes that regardless of which entities emerge victorious in the AI competition, those investing in the infrastructure will reap the benefits. This trend is expected to create additional opportunities for electric utilities, infrastructure firms, and industrial companies, all of which are already capitalizing on the global themes of electrification and deglobalization. Despite potential volatility in the tech sector, Haefele remains optimistic about the fundamentals driving AI growth. He has revised his forecasts for global tech earnings growth, projecting a 22% increase for 2024 and an 18% increase for 2025. This suggests that long-term investors should consider leveraging potential short-term volatility to enhance their exposure to AI-related investments.
Emerging markets are gaining attention as a viable investment avenue, particularly with a stable-to-softer outlook for the US dollar and stimulative measures from China. However, these markets are trade-dependent, so potential US tariff hikes need to be carefully assessed. Blongastaine identifies additional themes that are likely to create investment opportunities in the coming years, including companies focused on climate adaptation and resilience, as well as those catering to an aging global population.
As the financial markets evolve, the interplay between technology, policy, and global economic conditions will shape investment strategies. Investors are encouraged to remain agile and leverage insights from industry experts to identify opportunities that align with their risk tolerance and long-term objectives. The focus on AI, emerging markets, and strategic fixed income management underscores a dynamic approach to navigating the complexities of the modern investment environment.