At the start of 2024 only few strategists and market pundits
foresaw the strength of equity markets in general, and financials stocks in
particular. The MSCI AC World rallied 17.5% in USD in 2024, while the MSCI AC
World Financials gained a stunning 24.3%. As always, we note that equity
markets continue to be highly correlated with the direction of global liquidity
indicators. The course of action in (real) interest rates, credit spreads and
global central bank policies will continue to set the tone, especially for
financials.
A key issue facing investors at the start of 2025 is the
self-evident contradictory nature of incoming US President Trump’s policy
agenda and how those contradictions are going to be resolved. At the same time,
surging bond yields and inflation expectations will – in our view – enforce
fiscal discipline across the globe and moderate the extreme elements of any
tariff plan. While we do not exclude the possibility of continuously high US
bond yields and USD strength, we think we may be closer to peak than is currently
priced-in, and investors need to be careful to avoid managing portfolios by
looking through the rear-view mirror. We prefer to focus on the structural
growth trends that drive our stocks, as they tend to show far more consistency
and longevity than the typically reactive Wall Street consensus.
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