2025 Outlook
Executive Summary
Over the past three years, liquidity markets have experienced significant growth, particularly in the US, where money market assets have surged by over US$2tn since the Federal Reserve began raising rates in March 2022. This increase was driven by rising yields, which reached their highest levels in decades. Despite widespread predictions that this trend will reverse in 2025 due to the Fed’s shift towards easing, we maintain a more optimistic outlook, with US$300bn flowing into money funds since the Fed’s half-point rate cut in September.
The new Trump administration inherits a strong, albeit uneven, economy. While the Fed’s easing cycle has begun, the administration’s policies—such as tax cuts, increased spending, and tariffs—could complicate the economic landscape and lead to a more bond-unfriendly environment. These policies may also result in a steeper US yield curve and short-term inflationary pressures, causing the Fed to ease less than anticipated. For spread markets, positive growth policies could benefit corporate debt, but increased volatility may impact returns. Geopolitical shifts and aggressive tariff policies could disrupt markets, creating new opportunities in non-US developed and emerging markets.
For US equities, the implementation of President Trump’s pro-growth agenda, including lower corporate tax rates and reduced regulatory burdens, is anticipated to boost economic productivity and growth. With the broader US market expected to do well in 2025, our preference remains with large cap value and small cap stocks.
Outside of the US, investors have been watching China closely and while performance in 2025 may continue to underwhelm, action from Beijing has been encouraging, with the government signalling that they will do whatever it takes to revive the economy. Trade tariffs once again loom on the horizon, but this time Chinese companies are more prepared, with many having diversified their production bases internationally. Elsewhere, the structural growth drivers of emerging markets remain robust and fundamentals sound.
Private markets will continue their growth trajectory, and investors with a global reach, significant deal flow and rigorous underwriting standards will continue to be rewarded. We expect private debt to continue to offer compelling returns for investors in 2025, for those looking in the right parts of the market. With inflation seemingly back under control, private equity activity has also resurged, and we expect to see continued improvement in deal flow, exits and multiples.
After a turbulent few years of challenges induced by post-pandemic shifts in economic activity, geopolitical instability and subsequent inflationary pressures, the global economy is now beginning to normalise and the priority for investors should be rebalancing their portfolios accordingly.
Expert perspectives from across the firm
Equities: Will the equities rally continue and how might the Republican clean sweep affect the asset class?
Fixed income: What are the key themes for fixed income as the new year beckons?
Private markets: Will it be mostly headwinds or tailwinds for the asset class in the coming year?
