Top concerns for 2025: CIOs worry about trade wars and concentration risk

Trade wars, inflation, and equity concentration are at the forefront of concerns for Chief Investment Officers (CIOs) in the upcoming year, according to the latest Market Sentiment Survey by Asset Risk Consultants (ARC).

In light of Donald Trump’s election victory in November, apprehensions about possible trade wars and disruptions in the supply chain have escalated significantly. The survey of 98 CIOs also revealed ongoing concerns regarding inflationary pressures and responses to monetary policy.

Moreover, the survey highlighted potential risks stemming from overvaluations and the dominance of specific sectors or companies, which could pose systemic risks.

Dr. James Cooke, the deputy CIO at ARC, pointed out the interconnected nature of these risks. He stated, “Trade wars coupled with a slowdown in China could lead to increased tensions in Taiwan, raising concerns about advanced node semiconductor manufacturing, impacting many of the Magnificent Seven. Excessive inflation could prompt central banks to tighten monetary policy more aggressively, affecting the return on risk assets.”

On a positive note, there is a significant amount of cash in money market funds or ‘dry powder.’ Dr. Cooke suggested that 2025 might witness a surge in ‘animal spirits’ and heightened M&A activity, which typically bodes well for equity prices, especially for slightly smaller companies. This trend might lead to a broadening of equity markets, as forecasted by many managers in the previous year.

Despite worries about market concentration, the net sentiment towards equities has increased to 56%, up from 21% in the last 12 months. However, sentiment towards UK and European equities has declined, and CIO enthusiasm for bonds has also diminished over the last quarter.

In summary, trade wars, inflation, and equity concentration emerged as significant concerns for CIOs, alongside worries about overvaluations and sector dominance. The survey sheds light on the potential risks and interconnections that could impact investment decisions in the upcoming year.