From promises to implementation: where will economic policy go?
House Views
January 2025
SG Kleinwort Hambros Monthly House Views January 2025
Our Main Convictions
Economic Outlook
DIRECTIONAL VIEWS
Our Asset Allocation *in Detail*
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January 2025 House Views
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Inflation fears = upward pressure on yields
At the start of this year, there remains a great deal of uncertainty surrounding the implementation of economic policy choices. In the United States in particular, the new administration will have to prove to what extent the policies promised during the campaign can be implemented. These uncertainties are fuelling fears about the inflation outlook, which is generating volatility in long-term bond yields. This volatility should not, however, detract from the fact that the economic environment remains firm. In the United States, growth remains underpinned by sound household and business balance sheets. In Europe, growth is relatively muted and uncertain, but still positive, underpinned by both easing inflation and lower interest rates. Finally, in China, exports remain robust. However, the ailing property market continues to weigh on domestic demand, as all manner of stakeholders await details on government stimulus measures.
We maintain a positive outlook
We continue to favour the US equity market, in particular sectors and styles that would benefit from favourable industrial policies and withstand the higher-interest rate environment. Corporate credit remains attractive also, despite compressed spreads vs. treasuries and other government debt. Additionally, we continue to expect European equities to perform well, especially companies and sectors that are exposed to US activity but with limited risks in terms of trade restrictions. Emerging equity markets, however, may suffer further, with China specifically targeted by trade restrictions. Market uncertainty will remain the order of the day in the current political and geopolitical context.
Unless specified, all figures and statistics in this report are from Bloomberg and Macrobond on 29/01/2025 publication completion date. Past performance does not prejudge future performance. Investments may be subject to market fluctuations, and the price and value of investments and the resulting revenues may fluctuate downward and upward. Your capital is not protected, and original investments may not be recovered.