Market Outlook 2025: Predictions from Wilson Asset Management
As we look ahead to 2025, we anticipate a year of moderation in the financial markets. This means slower growth, positive but lower equity returns, stable inflation, and decreasing interest rates. Even though things may be slowing down, there will still be plenty of action in the markets. Influenced by global trade tensions, mixed economic data, different fiscal and monetary policies, and robust money flows, 2025 is sure to be an eventful year.
One thing to keep an eye on is the possibility of revived trade wars as former President Trump comes back into office. There could be significant tariffs imposed, which might not be fully reflected in the current market prices. If China and the EU retaliate, it could create a bumpy start to the year for risky assets. However, these tariffs are mostly viewed as a negotiation tactic. Keep in mind that headlines might sound worse than reality. In the long run, the impact of these tariffs on consumers raises questions about their effectiveness. We also anticipate ongoing pressure on the Australian dollar in the early part of 2025.
Geopolitically, we might see a shift from Russia/Ukraine tensions to the Middle East, especially concerning Iran. Oil prices could be supported by strikes, sanctions, and disruptions in shipping routes. The actions of OPEC+ will be crucial – if they decide to boost production instead of maintaining prices, it could have a significant impact on global oil supply. While our investment portfolio currently has limited exposure to oil companies like Woodside and Santos, we are closely monitoring this sector due to negative market sentiment and appealing equity valuations.
When it comes to China, sentiment might not be great in the beginning of 2025 due to ongoing tariff issues. However, this could present an opportunity to invest in resource stocks before the National People’s Congress in March. We anticipate that China will implement substantial stimulus measures to boost domestic consumption and infrastructure, aiming to stabilize growth and address demographic challenges. This could benefit companies like Treasury Wine Estates, A2 Milk, Rio Tinto, and South32, due to China’s demand for aluminum, copper, and consumer goods.
Looking at the valuation mean reversion, there are questions about whether it is achievable or just wishful thinking. The major Australian banks had a remarkable run in 2024, with Commonwealth Bank trading at high Price to Book value and lower dividend yields than term deposits. This might not represent good value for us, but sharp reversals in the banking sector could present significant opportunities for alpha. We are more inclined towards undervalued companies with strong assets, such as Spark New Zealand, Telstra, Dexus, and Challenger.
These are our current perspectives on some of the key market debates. Keep an eye out for more insights in early 2025 as we delve deeper into the forces shaping the markets. Overall, 2025 is shaping up to be a volatile but potentially rewarding year for investors.
