Portfolio managers from some of Franklin Templeton’s specialist investment managers have shared their outlooks for 2025, highlighting where the potential opportunities are in the new year.
Western Asset is bullish on the US economy due to its resilience although there is expectation for a moderate slowdown in the year ahead but without recession.
The firm expects robust issuance in fixed income to fund new infrastructure initiatives, following on from a record year that buoyed municipal yields and tax-exempt income opportunities.
“However, a unified government under Trump could drive higher bond issuance and might put upward pressure on bond yields,” notes CIO Michael Buchanan, who also says the returning president’s policies could drive up inflation and lead to a slower pace of rate cuts from the Fed and other central banks in developed economies.
Brandywine Global also highlights the potential for greater macroeconomic uncertainty that may result from the new administration’s policy shifts. While there may be some benefits of the removal of election uncertainty and some gains for some industries, there could be headwinds to growth from policies in areas such as tariffs and immigration.
Bill Zox, Brandywine PM, says there is also a notable shift among fixed income investors from sovereign bonds to high yield credit.
“Traditionally, sovereign bonds were the core while credit was the periphery of the fixed income universe,” Zox said. “After 15 years of low to negative returns from sovereign bonds, a fair amount of volatility and a large drawdown in 2021 to 2022 that has not yet been recovered, allocators are now favoring credit over sovereign bonds.”
Meanwhile, at Martin Currie, there is expectation that global equities will continue to offer opportunities from the focus on three key areas: the energy transition, ageing populations and, most importantly, artificial intelligence.
“AI is likely to lead to a significant acceleration in innovation potential and breakthroughs across many fields of the economy,” said PM Zehrid Osmani. “We continue to see more support for companies that can monetize the significant investment cycle brought by this AI revolution. In our view, we favor the enablers of AI to generate long-term growth, specifically those involved in the design and production of semiconductors, not to mention the cloud hyperscalers.”
There is, however, the likelihood of disruption from AI for those with established business models. Long-term investors will need to be cognisant of this and also ensuring that valuations are not distorted by froth in some areas of the market.
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