Outlook 2025 - Listed assets

Editorial

The political agenda in 2024 was quite busy, with some scheduled elections and others that were unexpected. This all led to uncertainty, which was further fuelled globally by continued armed conflict in Russia-Ukraine and the Middle East and tensions in the South China Sea. However, these were not the only consequential events of the year. Climate change triggered a significant number of natural disasters, such as the devastating floods that hit Spain in November. The US election results put an end to the suspense that had gripped the country for so long, but the fundamental elements that prevailed in 2024 will extend into 2025, i.e. political uncertainty on both sides of the Atlantic, major geopolitical risks, and the need to adapt to and mitigate climate change.

ECONOMIC PERFORMANCE POLARISATION

We had reiterated our confidence in the US economy this time last year. Although the political landscape is changing, the country’s economy still seems to be on solid footing. Donald Trump has made many announcements, but we still do not know how he is going to steer his trade policy. While this is creating instability, the US economy remains dynamic. That said, we are aware of the negative repercussions that a trade war could have on the rest of the world. As 2025 kicks off, we can see that Asia’s economic growth is also robust. The US and Asia are therefore the world’s two economic growth drivers, with Europe caught in between.

In Germany, the industrial sector, especially the automotive industry, continues to struggle, and a trade war would only exacerbate this situation for the country that was once Europe's economic growth engine. In France, the prospect of a solution to the country’s political crisis faded during the last few months of 2024, raising questions about its ability to attract foreign investment. Spain and Italy are faring well, but they both need the support of a strong Europe.

Despite the risks, we would not completely rule out the possibility of a market rebound, especially in Europe and emerging countries towards the end of the year. Efforts to deliver a structural economic turnaround in Germany after the country’s snap election in February would be good news. Such a rebound is more plausible as Europe’s consumers have sizeable savings and many of the region’s businesses boast solid fundamentals. Furthermore, Europe’s job market is healthy, and its PMI indices are very low and therefore ripe for improvement. Such a cautious climate, of course, offers investment opportunities. Especially as the market scenario is similar to the one that prevailed after Donald Trump was elected in 2016, certain sectors could perform very well over the coming years.

WORTH WATCHING IN 2025

If Trump and his administration manage to control a potential surge in inflation, US equities could deliver returns in the region of 10% in 20251. We have identified promising sectors, first and foremost healthcare. The sector is trading at attractive valuations and is set to benefit from R&D and technological advances and innovation-friendly regulations.
We are also positive on artificial intelligence. There are clear opportunities with the construction of many data centres and within the ecosystem of AI developers and integrators.

“We are not only interested in providers but also in businesses offering AI applications and those developing services based on AI technology. We are already seeing the positive effects on their earnings”, points out Jens Peers.

The water industry, and all businesses involved in improving water access and water quality, are expected to trend positively. It could be a more challenging year for renewable energy, but we would not rule it out as it offers upside potential. As with the water industry solutions facilitating access to energy should perform well, especially in those countries that are reluctant to make use of nuclear power. Donald Trump is not likely to reverse the development of renewable energy, as it has been gaining ground in various Republican states and generating sizeable economic gains. The water and energy sectors require infrastructure, networks, and therefore raw materials, including copper, so it will be worth watching commodity prices closely.

"On the other hand, I have some concerns about consumer- related sectors”, Jens Peers adds. “Besides facing the threat of inflation, the retail sector might also struggle to hire staff in the US once migration flows are blocked.”

NOT FORGETTING THE LONG TERM 

While ESG²may no longer appear to be a major concern for investors, the investment themes centred around climate, the environment, social issues, and human capital continue to be essential in understanding companies and their strategies, both in the short and long term. Despite some dithering on the regulatory front, businesses are already undergoing a transition as they understand managing sustainability issues is critical to their risk management and that they must adapt their business models if they want to remain competitive. So, it remains as important as ever to factor in these criteria when assessing a company’s quality. The adaptation theme, as businesses prepare for these changes, is a promising investment trend. Structural trends like resource preservation, adaptation to population change, and the pressing need for climate transition are among our longterm investment themes which also offer attractive short-term investment opportunities thanks to technological acceleration. In today’s highly polarised world, continued uncertainty could create volatility. This will require businesses to be very agile and calls for an active approach to asset management.

THE FUNDAMENTALS OF TODAY AND TOMORROW

Our convictions about the structural trends that are going to shape the future remain the same, regardless of the scenario that materialises in 2025. Even if only for pragmatic reasons, governments and economic actors alike are going to have to adapt to the effects of climate change as it threatens entire regions along with their inhabitants and businesses. Delays on introducing certain environmental and climate policies and regulations are not going to bring the transition to a halt. The drive to ensure good stewardship of humanity, the planet, and its critical resources will transcend unstable politics and economic contingencies and remain central to our investment convictions.

A look back at 2024

1 | Stable global economic growth

• The global economy grew by about 3% in 2024, roughly the same as in 2023, driven by services.
• Growth rates varied considerably between regions and between countries.

2 | The US is strong as ever

• US economic growth reached 2.8%, buoyed by resilient consumer spending despite high interest rates.
• The dollar appreciated significantly.

3 | A multi-speed Europe

• EU economic growth came to 0.8%, with major differences between the region’s ‘core’ countries (France, Germany) and its ‘peripheral’ countries (Spain, Italy, Ireland) which performed better.

4 | Central banks make a U-turn

• Central banks launched a long-awaited cycle of monetary easing.
• The Federal Reserve cut its key rate from 5.5% to 4.5% and the European Central Bank (ECB) from 4% to 3%.

5 | Major state intervention in China

• China managed to achieve 5% GDP growth despite economic challenges.
• It launched a massive stimulus plan in the 4th quarter aimed at tackling sluggish consumer spending, the property slump, and deflationary
  pressures.

6 | A busy year on the political front…

• The US held its presidential election, France’s National Assembly was dissolved, and Germany’s coalition imploded.

7 | … and on the geopolitical front

• The year saw heightened tension between Russia and Ukraine/NATO and in the South China Sea, and continued concerns about an escalation in the Middle East.

8 | Credit markets boosted by healthy company financials

• Credit markets were buoyed by businesses with solid balance sheets and resilient operating margins, especially in the US.
• The high yield³ segment performed well and investors showed a lot of interest in sovereign bonds issued by Europe’s peripheral countries, with yield curves steepening on both sides of the Atlantic.
• 10-year yields increased in the first half of the year, while 2-year yields fell sharply, as did inflation.

9 | The US in the lead

• US equity indices outperformed their European counterparts by 20%, mostly thanks to the Magnificent Seven⁴.
• The year got off to a good start for equity markets as central banks cut interest rates.
• From September onward, investors favored cyclical sectors, prioritizing them over defensive sectors.

10 | Donald Trump gets re-elected

• There are concerns about the repercussions of his policy guidelines for the economy and global trade, especially about the potential inflationary effects.

Our convictions 2025 - Mirova's baseline scenario⁵

Growth and inflation - the right balance

Macro perspectives

MAIN RISKS

• Higher tariffs, inflationary pressures, and a trade war.
• The threat of geopolitical conflicts and political instability in France and/or Germany.
• Lower consumer spending due to a potential negative wealth effect in the US and a prolonged property crisis in China.

The information given reflects Mirova's opinion and the situation at the date of this document and is subject to the change without notice.

1. Source: Mirova.
2. Environmental, social and governance criteria.
Source: Mirova.
3. High yield bonds are bonds issued offering high yields in return for a high level of risk.
4. A group of seven major tech stocks that have recently performed very well on the equity markets, especially in the US (Tesla,
Apple, Amazon, Alphabet, Microsoft, Meta and Nvidia).
Past performance is not indicative of future performance.
5. Find out more about our alternative scenarios on page 12.
6. Source: Bloomberg.