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We remain positive on equities going into 2025 as we expect the global economy to continue to grow with the government of the two largest economies, the US and China, who are both implementing supportive and stimulating policies. Global equity markets have been strong in 2024 with US equities leading and even Chinese equities up. This reflected a resilient economic activity in the US and Europe, the expectation of looser monetary policies by central banks, and reasonable valuation in aggregate.
In the absence of a major macro shock or a recession, equities should continue to perform better than most traditional asset classes, as they did in 2024.
Looking ahead to 2025, we expect continued growth in the US economy, with economic activity broadening as the cycle matures and the new administration implements pro-growth policies. On the other hand, the activity in Europe will continue to slow, but we expect the central bank to cut rates to counteract this slowdown. Finally, China will continue to
support its economy as it digests the housing malaise. This, coupled with a higher but contained inflation globally, means positive global nominal economic growth and therefore higher corporate earnings.
Earnings - positive
Overall, earnings are expected to grow in all regions in 2025, but at a different pace and with a different path. In the US, earnings will grow faster in 2025 at approximately 14%, as the economic activity broadens and more sectors such as industrials, financials or materials enjoys faster growth than in 2024. In Europe, despite the challenging conditions, earnings will grow as well but at a more moderate pace and are at risk of negative revisions. Chinese equities in aggregate should also grow earnings but at a modest 4-5%, decelerating significantly compared to 2024.
Valuation – some cautiousness
While the economic and earnings outlook offer a positive picture, valuation is a different story, particularly for the largest capitalisations in the US. As shown below, for the S&P 500, we began 2023 and 2024 with reasonable or slightly expensive valuation multiple that kept expanding throughout the year and enhanced returns. In 2025, we do not expect the same contribution as multiple are already full. However, outside the largest market capitalisation, valuation multiples are lower. Europe appears to offer lower valuation multiples at first glance, but its growth outlook, profitability and exposure to structural trends such as AI are comparatively weaker.
Thus, we continue to favour US equities and maintain a preference for the technology sector, while also adopting a broader market exposure through strategies like equal-weight or mid-capitalisation approach. In Europe, we remain defensive starting 2025, but we will be looking at adding exposure should the government and the central bank get aligned to stimulate the economy.