High valuation levels on the stock markets and higher uncertainty regarding US politics under future President Donald Trump will require a higher level of diversification and selection in the portfolio in 2025, according to HQ Trust.
Christian Subbe, chief investment strategist at the Harald Quandt family’s multi-family office, now sees shares in medium-sized and smaller companies as increasingly attractive. “We have invested in global small caps and are pursuing a strategy that is more equally weighted in North America,” said Subbe on Wednesday in Frankfurt.
At the same time, HQ Trust is in the process of underweighting shares in the “Magnificent 7”. They are seen as “increasingly vulnerable” given their sheer size and high valuations, as well as possible increased regulations. The so-called “Magnificent 7” are the seven largest US companies Apple, Amazon, Alphabet, Meta, Microsoft, NVIDIA and Tesla, all of which are assigned to the technology sector.
Nevertheless, Subbe believes that technology will continue as a “megatrend not only of this decade but of the last two decades” and that investors can benefit from it. With regard to artificial intelligence, which is currently probably the most important driver in the industry, “an exuberant euphoria like in 2000 is not yet there,” he emphasized.
According to chief economist Michael Heise, it will soon become clear whether the high valuation levels on the stock markets as a whole are still justified. “There will be numerous decisions made in 2025.” Investors’ confidence in growth coupled with relatively subdued inflation and somewhat looser inflation continues to be reflected on the stock markets monetary policy“Whether this happens, however, depends heavily on the decisions in the USA. A complete implementation of Trump’s customs and deportation plans would contradict this. However, such an extreme scenario is generally not assumed.
Heise himself expects the USA to gradually introduce tariffs and also expects deportations of migrants, although not to the extent Trump announced. At the same time, he assumes deregulation, tax cuts and an increased US location policy and therefore speaks of “a mix of contractionary and expansionary measures”.
For the new year, Heise expects a “soft landing” for the US economy overall and forecasts growth of 1.7 percent, which is below market expectations. The global growth engine remains China, which according to the expert is expected to grow by 4.1 percent in 2025. Overall, the global economy should grow by around 2.6 percent this year.
HQ Trust is assuming a moderate upward trend of 1.3 percent for the Euroregion. Heise primarily points to private consumption as a driving force. In this country, the federal elections in February and the war in Ukraine are also likely to be important factors for the economy. He is currently expecting German gross domestic product to grow by 0.5 percent in 2025.
All in all, the USA’s growth advantage remains compared to the US Eurozone consist. In terms of labor productivity, the lead has actually increased at an accelerated rate since 2020. While in the Euro countries the major expenditure on research and development still flows into traditional areas, in the USA this has completely changed towards technology.
According to economist Heise, there is still no all-clear for the central banks when it comes to consumer prices. “Core inflation in the US and EU remains stubborn.” The core inflation rate excludes the strongly fluctuating prices for energy and food and, in the opinion of experts, therefore reflects the general price trend better than the overall rate. Interest rates could therefore be lowered less this year, particularly by the European Central Bank (ECB), than the markets assume. HQ Trust expects one or two interest rate cuts from the US Federal Reserve in 2025. He expects three interest rate hikes from the ECB.
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FRANKFURT (dpa-AFX)
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