Welcome to Syz Bank's 2025 Global outlook!

2024 has been a remarkable year for global markets, with equity indices, gold, and bitcoin reaching or nearing all-time highs. As we prepare to step into 2025, the question remains: what lies ahead? Let’s review the good, the bad, and the ugly of next year’s investment outlook.

The Good

The current global macroeconomic and microeconomic landscape is favourable for risk assets, particularly U.S. equities. Here’s why:
•    Reflation is occurring in the world’s largest economies, with both the U.S. and China simultaneously experiencing economic expansion.
•    The U.S. administration remains pro-growth, with policies that continue to support business growth and economic activity.
•    Real interest rates are expected to decline in most developed economies, providing further economic stimulus.
•    Corporate earnings are projected to grow at double-digit rates next year, indicating a strong earnings outlook.

The Bad

While the outlook remains positive, much of the good news appears to be already reflected in current market prices. The S&P 500 is trading at nearly 28 times its earnings over the past year, a historically high valuation, and credit spreads have tightened to record lows. While this doesn’t necessarily indicate an imminent downturn, it does suggest heightened risks. Any unexpected negative developments could place significant downward pressure on the markets.

And finally, the UGLY.

The U.S.'s unique position in the global economy brings its own set of challenges. Government spending continues to climb, with rising debt and fiscal dominance posing long-term risks that cannot be overlooked. Inflationary policies, including tax cuts, tariffs, and restrictive immigration measures, have the potential to drive inflation higher, which could lead to increased long-term bond yields. In turn, these higher yields might trigger a correction in equity markets, adding to the complexity of the economic landscape.

Our 2025 perspective

Overall, we remain positive on risk assets and maintain a long position on U.S. equities. However, we expect volatility to return in 2025. Markets are pricing in “Trump 2.0”, but surprises, both positive or negative, could lead to unpredictable outcomes.

With this outlook in mind, here are our top three investment themes for 2025.

1. Beyond the Magnificent 7

The mega-cap tech trade is crowded. We recommend broadening your horizons to capture overlooked opportunities:

• Focus on companies poised to benefit from AI advancements, particularly outside the tech sector.
• Look at U.S. domestic stocks, especially small and mid-caps, that could benefit from lower taxes and deregulation.
• Seek growth opportunities in Northeast Asia and other emerging markets, such as China, India, and Vietnam.

2. Reimagining diversification

As correlations between U.S. Treasuries and equities increase, diversifying portfolios becomes increasingly important. Alternative assets, including hedge funds and private investments, provide opportunities for less liquid diversification. Meanwhile, macro diversifiers such as money markets, gold, precious metals, and even bitcoin continue to serve as strong defensive assets in a balanced portfolio.

3. Crypto & digital assets

For the first time, a crypto-friendly administration in Washington could drive significant advancements in digital assets. Bitcoin, now the seventh-largest global asset, remains underrepresented in many portfolios, highlighting untapped potential. Additionally, the expanding crypto ecosystem offers compelling opportunities for forward-looking investors seeking to capitalise on this dynamic sector.