2025 Outlook : caution recommended on European markets
By David Taïeb, Chief Investment Officer – Listed Assets, Sienna Investment Managers
The economic difficulties in France and Germany, combined with the climate of political uncertainty in both countries, are urging investors to opt for caution in the euro zone over the coming months. On the other hand, the US market and some emerging countries still have a certain potential for appreciation.
In 2025, global growth is expected to be around 2.5%, supported by the dynamism of the US economy and emerging countries. In the United States, several factors are combining to support growth. Donald Trump’s return to the White House should lead the new administration to increase budget spending while passing tax cut programs. In addition, the Fed has room to cut rates if necessary. Finally, we cannot overlook the lead taken by American companies in the mastery of artificial intelligence (AI), which should allow them to gain additional market share at the expense of their foreign counterparts.
Some emerging countries (India, Brazil, Thailand, etc.) should also be able to do well thanks to reactive monetary and fiscal policies, while China’s recovering economy will keep its focus on its domestic market, as the context for international trade remains difficult.
In the euro zone, the two largest economies are going through a challenging period as well as a detrimental situation of political uncertainty. In Germany, the growth model based on the import of cheap energy (Russian gas) and exports to emerging countries, in particular China, is now largely frozen. Since 2022, German industrial companies have been forced to partly list the increase in their production costs on sales prices, eroding their competitiveness. On the other side of the Rhine, France is suffering from political instability and the inability of successive governments to contain the increase in the public deficit.
ECB: towards an acceleration of the timetable for rate cuts?
The decline in inflation and the sharper-than-expected economic slowdown in Europe (decline in the composite PMI index in the euro zone in November) should convince the members of the European Central Bank (ECB) to accelerate the pace of rate cuts, as early as the meeting on 12 December, to limit the deterioration of the economy. Especially since inflationary pressures have eased and the ECB’s 2% target is expected to be reached over the course of next year. While monetary policies between the major central banks remain broadly correlated, the gap between the two areas would nevertheless justify a more aggressive monetary policy on the part of the ECB.
This difficult environment for the eurozone justifies a certain caution from investors vis-à-vis European equities in the coming months. In a context of renewed volatility on global stock markets, the US markets still have a certain upside potential in 2025. If Donald Trump were to implement his tax cut program in full, US corporate EPS (earnings per share) could rise by 8-10%. Even taking into account a more cautious scenario, the US markets still have a potential for a 4-5% revaluation. In addition, emerging markets will continue to offer a particularly attractive risk-return ratio for investors, both in equity markets and in bonds (the attractiveness of emerging debt).
Finally, the persistence of the rate cut cycle should continue to erode the yields offered in money markets. This backdrop restores relative attractiveness to global bond markets, provided they remain selective and focus on the best-rated issuers