Macro views

GFI Outlook 2025: In it to win it

January 16, 2025 - 9 min read

Global Financial institutions began 2024 with a lot of questions and an understandable lack of concrete answers – many instead, chose to focus their calls for the year on the longer term. But, if the year began as one of dis-consensus, it ended with what appears to be a great deal more agreement.

In an effort to better understand our clients’ concerns and, thus be better equipped to anticipate their needs we have been aggregating the public outlooks of many of the world’s global financial institutions (GFIs) for a number of years. It provides insight into how they are thinking about the year ahead and, importantly how that thinking changes over time.

And delving into the data this year, what becomes clear is that there are a number of reasons for the increased bullishness currently on show.

The first is that 2024 ended up being a very good year for most asset classes. As is evident from the chart below, outside of emerging market local currency debt and oil, almost everything else was flat or positive and in some cases – gold, US equities and Growth equities more broadly, in particular – very positive.

Financial assets 2024 YTD performance

(in local currecy, as at 23.12.2024)

Finacial assets 2024 ytd performance (local currency as at 23 12 2024)

Source: Natixis IM Solutions, as at 23 December 2024

The second is the calls they got right and, as important, those they got wrong.

Looking back at the calls made last year, most GFI’s were pretty good at predicting the direction of travel from a macroeconomic standpoint. The key calls were:

for a global economic slowdown
the US to lead the global economy
for Europe to narrowly avoid recession
for China’s woes to continue.

So far so good. GFI’s were also mostly correct in their view that tech megacap stocks would continue to do well and that short-term credit would be a better place to be than cash. Where results were more mixed, was in the view that the stellar run up in December 2023 meant that US equities had, in many cases, made their 2024 targets by the start of the year and likely didn’t have that much further to run. And, while many expected US government bonds would deliver the best risk-adjusted returns, it was actually the high-yield market that did far better.

It would appear that the continued performance of the US equity markets over the course of 2024 has left GFIs reluctant to call the peak, especially in the wake of Donald Trump’s return to the White House, despite legitimate questions about current valuations.

Every single GFI outlook we reviewed is overweight US equities for 2025. This is a significant shift from 2024, where just over half were overweight, 10% were underweight and the rest were neutral on the asset class. And, while there are pockets of bearishness about the prospects for Europe, most GFI’s are more overweight than they were last year, with cash the only exception. When it comes to cash, everyone that has a view is underweight.

Source: Natixis IM Solutions, based on open information published by some of the largest Global Financial Institutions (‘GFI’) worldwide as identified by Natixis IM Not every GFI has explicitly mentioned their allocation for each asset class shown in the matrix, in which case assumptions have been made based on the relevant GFI’s macro views. The main purpose of this matrix is to compare the asset allocation of GFI.

The median view

Macro backdrop
A year of elections in 2024 culminated with Americans choosing to send Donald Trump back to the White House and his return to the presidency has shifted attention in 2025 from political uncertainty to policy uncertainty. The key questions on the minds of investors are how many of Trump’s campaign promises will actually become policy and when will the effects of such policies begin to be felt in the US.

But it isn’t only US policy that has commentators scratching their heads. China’s response to the threat of US tariffs remains a key concern. More broadly, there is an expectation that we will see divergence across the main economic regions not only in terms of growth, but also in terms of fiscal and monetary direction.

One of the key considerations flagged by GFIs as an area of potential concern are the state of government balance sheets. As evident during the finalisation of another last minute deal, the US debt ceiling remains a highly contentious issue. Moreover, both the International Monetary Fund and the Bank of International Settlements have raised concerns in recent months about the level of debt – a concern that could also partly explain the market’s appetite for gold over the past year.

Equities
There was a clear consensus among GFI’s that the US is expected to lead market performance in the first half of the year – driven by continued strong earnings growth, as well as the prospect of de-regulation and tax cuts. There is also an expectation that lower borrowing costs could lead to a rebound of M&A activity as well as share buybacks. Some expect to see the rally broadening not only to other parts of the US market, but also to other equity markets.

Other areas where GFIs see potential opportunity in 2025 are the green transition (albeit, only outside of the US), which is being driven by the continued boom in worldwide electricity consumption and emerging market equities that are expected to do well if the recent strong dollar performance subsides.

Staying with emerging markets, some GFIs expect China to roll out policies designed to stimulate domestic demand in response to the more aggressive posture of a Trump White House, which would be a positive for Chinese equities, while the domestic resilience shown by India and Indonesia last year is expected to continue.

Fixed Income
Similar to 2024, the majority of GFIs are overweight fixed income markets going into 2025. US Treasuries and global bonds are seen as offering opportunities – both in terms of potential price performance and income – as well as offering a buffer against a decline in equity valuations.

Moving into the credit space, despite being expensive in historical terms, the majority of GFIs are recommending allocations to investment grade credit in both the US and Europe. While less bullish on high yield, most are either neutral or overweight.

That said, phrases such as “bottom-up approach” and “focus on quality” made frequent appearances as GFIs were clear that not all credit instruments are created equal and an active approach was important. They are also more bullish on the prospects for European fixed income than they are for European equity markets, as they expect a more accommodative stance from the European Central Bank to be beneficial for eurozone fixed income.

Private assets
One of the key through lines permeating all of the GFI outlooks was an emphasis on the importance of private assets markets, not just as a source of diversification, but also as a potential source of returns.

According to GFIs, private asset markets currently benefit from a number of tail winds. The strength of equity markets and the current appetite for initial public offerings bodes well for private equity markets, which have been struggling somewhat in recent years to exit certain investments. On top of this, borrowing costs reman low, and the regulatory environment – especially in Europe – is favourable. All of which has left GFIs bullish on the potential returns available within the space.

How to play 2025
Going through the various GFI reports, what becomes clear is that few are willing to spend 2025 on the sidelines. Cash is out, equities are in and fixed income remains ripe with opportunity, albeit with a slight note of caution sounded about the importance of quality.

But, while the FOMO is evident, there remains one other key through line – diversification. While it may be that GFIs are bullish on virtually everything, part of the reason for this is that the high levels of uncertainty that remain in markets, demand a greater degree of diversification.

Glossary

Asset Class: A category of investments that share similar characteristics. Common asset classes include equities (stocks), fixed income (bonds), cash, real estate, and commodities.

Bullish: A term used to describe a positive outlook on the market or an asset, meaning that one expects prices to rise.

Bearish: The opposite of bullish; a negative outlook on the market or an asset, indicating that one expects prices to fall.

Equities: Shares of stock in a company, representing ownership. When you buy equities, you are buying a piece of that company.

Fixed Income: Investments that provide returns in the form of regular, or fixed, interest payments and the return of principal at maturity, such as bonds.

Emerging Markets: Countries with economies that are in the process of rapid growth and industrialization. These markets often have higher risks and potential returns compared to developed markets.

High-Yield Market: A market for bonds that offer higher interest rates because they are considered riskier investments.

Investment Grade: Bonds that are rated as having a low risk of default, making them safer investments compared to high-yield bonds.

M&A (Mergers and Acquisitions): The process of combining two companies (merger) or one company purchasing another (acquisition). This often leads to growth and expansion opportunities.

Share Buybacks: When a company repurchases its own shares from the marketplace, reducing the number of outstanding shares and often increasing the value of remaining shares.

Diversification: A risk management strategy that involves spreading investments across various asset classes or sectors to reduce exposure to any single asset or risk.

Debt Ceiling: A cap set by the United States Congress on the amount of money the federal government may borrow. When the ceiling is reached, the government cannot issue any more Treasury bonds until the limit is raised.

Central Bank: A national bank that provides financial and banking services for its country's government and commercial banking system, as well as implementing monetary policy.

Regulatory Environment: The set of laws and regulations that govern financial markets and institutions, which can affect how businesses operate.

Private Assets: Investments in private companies or funds that are not publicly traded. They can include private equity, real estate, or venture capital investments.

Quality: In investing, this refers to the financial health and performance of a company or investment. Higher-quality investments are typically more stable and less risky.

Overweight: A term used when an investor has a larger proportion of a particular asset in their portfolio compared to the market benchmark.

Underweight: The opposite of overweight; it indicates that an investor holds a smaller proportion of a particular asset in their portfolio compared to the market benchmark.

Neutral: A position where an investor does not have a strong opinion on whether the price of an asset will rise or fall, thus holding a balanced view.

Market Performance: The overall performance of a financial market or asset class, often measured by indices like the S&P 500 or Dow Jones Industrial Average.

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