Annual Global Market Outlook: A Favorable Environment for Stocks and Vigilance Against Changes

Key Chapter Title List

1. Message from the Chief Investment Officer
2. Economic Outlook
3. Investment Strategy
4. Asset Classes
5. Australian Equities
6. Developed Market Equities
7. Emerging Market Equities
8. Listed Real Assets – Global REITs & Infrastructure
9. High Yield Bonds
10. Gold
11. Duration
12. Australian Dollar

Document Introduction

In 2024, global markets recovered their early-2022 highs and maintained their footing, laying a positive foundation for market momentum and sentiment. Entering 2025, against a more favorable macroeconomic backdrop, risk assets are poised to extend their gains further. However, as policy impacts transmit unevenly across the globe, investors need to remain vigilant to market shifts. This report does not predict the market's endpoint 12 months from now. Instead, it provides investors with guidance on potential risks and opportunities in 2025, analyzing the interplay of core factors driving market direction, short-term events, and long-term forces, along with corresponding portfolio allocation considerations.

From a market environment perspective, risk assets face the most constructive outlook in years at the start of 2025. Central banks continue to cut interest rates, fiscal policies remain expansionary, and the new U.S. president is highly likely to pursue a pro-growth agenda. Global growth contributions are expected to become more balanced, with world GDP growth forecast to moderately rebound to 3.3% in 2025. Although the market still faces headwinds such as elevated yield volatility, high valuations, and risks in certain market clusters, the current backdrop stands in stark contrast to the previous two years characterized by monetary policy tightening or restrictive levels, declining earnings growth, and quantitative tightening. Liquidity emerges as a key supporting factor for the market in the first quarter of 2025.

The world is transitioning from a long period of deflationary growth to a phase of rising inflation and higher interest rate levels. Structural forces including demographic shifts, rising inequality, a fragmenting world order, and the green transition are collectively driving this trend. Against this backdrop, monetary policy will focus more on controlling inflation within the cycle, and the use of unconventional policy tools may become more frequent. The U.S. Treasury's cash operations significantly impact market liquidity. It is estimated that in the first three months of 2025, if the debt ceiling is not raised, approximately $400 billion in excess liquidity will be injected into the financial system, providing support for markets.

The return of the Trump administration is one of the core factors influencing market divergence. While its tax, tariff, and immigration policies may benefit markets in the short term, they could exacerbate inflationary pressures and increase U.S. debt levels over the long term. Growth dynamics vary among major global economies. While U.S. economic growth is expected to moderate from 2024 levels, it will still lead developed markets. China's growth is forecast to slow to 4.3%, while Europe, Australia, and Japan are expected to achieve moderate growth of 1%-2%. Central bank policies are also adjusting divergently accordingly.

Regarding investment strategy, the environment for risk assets is favorable in the first half of 2025, but the second half may face changes brought about by policy shifts. The report maintains a modest overweight stance on developed market equities, favoring U.S. stocks, especially mega-cap technology-related shares, and holds a relatively positive short-term view on the Japanese market. It holds a modest underweight position on Australian equities, emerging market equities, and high yield bonds. It maintains a modest overweight on listed real assets and gold, while its duration positioning is neutral relative to the benchmark.

Analysis of asset classes reveals that different assets face their own opportunities and challenges. Australian equities face high valuations and constrained earnings growth. Developed market equities benefit from macroeconomic support and ample liquidity. Emerging market equities, while attractive on valuation, carry higher short-term risks. Gold finds support from widening deficits, geopolitical tensions, and central bank de-dollarization demand. Investors need to navigate market volatility and capture structural opportunities in 2025 through diversified asset allocation and tactical adjustments.