Capital Group Presents Investment Outlook 2025

On Tuesday 4 February 2025, Capital Group presented its Investment Outlook for 2025 at its office in Luxembourg-Kirchberg.

Berenger Vidal de la Blache, Managing Director for Luxembourg, Belgium & France at Capital Group, introduced the group and stated that they have $1.28 trillion of assets under management. He explained that the industry is being affected by M&A activity, with individual fund managers responsible for specific client portfolios. On their presence in Luxembourg which was established ten years ago, they currently have 43 associates based here.

Christophe Braun, Investment director based in Luxembourg, presented an equity outlook entitled "AI leads a broadening market". On driving markets in 2025, he explained that he feel it will be similar to 2024, i.e. inflation and rates. He said this will mean volatility, with moderate global growth (weaker than pre-pandemic, mainly due to China stagnating and may even fall into recession, and the US expected to grow). Inflation is expected to remain sticky, and both the ECB and US Fed may implement rate cuts less than markets are pricing. The said that economic growth around the world has become much more heterogeneous, with tourism, oil, etc., falling into recession. He feels that there will be more protectionism, referencing Trump's recent announcement regarding tariffs which could also effect the EU. India looks like it could be the big winner, referencing supply chains needing to be stable and efficient. He mentioned that Japan has left recession, with Japanese companies increasing risks and investing in R&D. He underlined that the most important economy to look at this year is that of the US: he said that profit margins are peaking, unemployment is low and credit demand is peaking. Trump has a pro-growth agenda; while inflation has come down, it remains higher than it has been historically.

He stated: "There are clear reasons to be optimistic about equity investing in 2025. The artificial intelligence build-out, the advancement of life-changing medicines in the health care sector and a global capital investment super-cycle are just a few trends driving opportunity for well-run companies across the economy. There are, however, risks, including the lofty valuations of many stocks and the potential for disruptive trade conflicts."

Joining online from London, Flavio Carpenzano, Investment director, chipped in about inflation which continues to slow, allowing central banks to cut rates. He referred to the housing market in the US, a main driver of inflation.

Christophe Braun continued by stating that company earnings are improving, yet there are mixed signals on economic group. He said that there is more growth coming from other sectors worldwide, not just the US, and there is a lot of hype around AI and healthcare, sectors that are innovating. The equity market leadership is widening with the "Magnificent 7" earnings growth expected to slow. More sectors now are expected to show increased returns, including materials, real estate, IT, financials and energy.

Patrice Colette, Portfolio Manager based in Luxembourg, discussed the sectors where he and the other managers of the flagship New Perspective Fund, see long-term opportunities. He recalled the last half-century of investing in opportunities arising from global change, from the 1970s (oil and metals), the 1980s (electronics and computers), the 1990s (telecoms, media and technology), the 200s (mining and consumer products), the 2010s (IT, eCommerce and internet platforms) and the 2020s (accelerated digital disruption, health care innovation and industrial renaissance). He said that we are currently in a unique period in history marked by a confluence of several transformational changes. He described a "golden age of health care innovation and growth" with vaccines, genetics and much more. He also talked about industrial renaissance for countries like Saudi Arabia and across the EU, as well as defence expenditure.

Flavio Carpenzano then discussed Capital Group’s fixed income outlook in a presentation entitled "Resilient US provides an anchor". He said that, for 2025, the market expects less rate cuts than policymakers, and stressed that markets do not always get it right, and stressed that past results are not a guarantee of future results. He said that fixed income markets remain attractive, where yields have dropped somewhat compared to the start of 2023, with inflation being significantly lower. He stressed that starting yields have been a strong indicator of future results. Overall, the roles of fixed incomes are back, as diversification from equities have persisted when inflation normalised and fell below 3%. He stated that the net debt to EBITDA is still below post-GFC medians. He added that spreads are tight but the overall buffer is higher; the US high-yield market remains attractive as it is showing improving average credit quality, and that there are attractive real yields in emerging market debt. In conclusion, he stated that flexibility and selectivity can harness the power of income.

He stated: "Bonds appear to have returned to their traditional role as portfolio diversifiers. This dynamic was evident in early August 2024 when equity markets came under pressure on weaker-than-expected economic data. While equities sold off, bond markets rallied, mitigating losses for mixed asset portfolios. Over the past 50 years, the negative correlation between bonds and equities typically occurred when inflation was close to the Fed’s 2% target. Although there are exceptions (notably the 1990s), periods of high inflation have generally seen both asset classes become positively correlated. Looking forward to 2025, inflation is trending, which means fixed income could once again provide a measure of income, diversification, and ballast against stock market volatility."

A Q&A session followed the presentations, in which the main topic was the unpredictability of US President Trump. One specific point was that it is expected that there will be more drilling for oil; regarding tariffs, looking back to Trump's first term when he also introduced tariffs, inflation did come, but not until later Berenger Vidal de la Blache stated that historically US Presidents have little impact on financial markets; nevertheless, there may be volatility in the short term. He said that he expects Trump to implement policies that would create a stimulus to infrastructure and markets. He also welcomed technology disruptors, such as DeepSeek, as this "enables the identification of global champions of tomorrow"