MS-2025 Global Strategy Outlook

Summary of Key Points from the Conference Call Industry Overview - Focus on Global Strategy for 2025: The macro environment is characterized by moderate growth, disinflation, and a focus on deregulation, which is favorable for risk assets. However, uncertainty regarding policy sequencing and severity is expected to be significant in 2025 [1][7]. Core Insights - Investment Outlook: - Global equities are favored, particularly in the US and Japan, while European equities are viewed neutrally due to tariff risks and exposure to China. Emerging Markets (EM) are the least favored due to increasing trade tensions [8]. - The expectation is for Treasury yields to decline as the Federal Reserve is anticipated to cut rates more than currently priced in by the market [9]. - The US dollar is expected to face mixed influences, with tariffs and geopolitical tensions supporting it, but falling real rates limiting its strength in 2025 [10]. - EM fixed income is seen as a potential buy opportunity, with lower US Treasury yields supporting it, despite trade tensions being a risk [11]. - Corporate Credit: The first half of 2025 is expected to be favorable for corporate credit, while the second half may see a shift towards equities as M&A activity increases [12]. - Securitized Products: Attractive valuations and deregulation are expected to support demand for various securitized products, including agency MBS and CLOs [13]. - Commodities: Oil and gold face headwinds, while copper is favored due to recovering demand [14]. Important Considerations - Policy Uncertainty: The timing and nature of US fiscal, trade, and immigration policies under the incoming administration are crucial. The market is expected to react sensitively to these developments, which could lead to divergent investment outcomes [21][66]. - Economic Growth Forecasts: Global growth is projected at 3.0% for 2025, with the US leading at 2.1%. Other regions like the euro area, UK, and Japan are expected to see improved growth compared to 2024 [22][23]. - Valuation Concerns: Equity valuations have reached high levels, with the forward P/E ratio for MSCI ACWI at 18.3x, indicating a post-COVID high. This is primarily driven by the US market [27][31]. Risk Scenarios - Bull Case: A rebound in global growth driven by US investment demand or Chinese fiscal stimulus could lead to elevated risk asset performance [69]. - Bear Case: Rapid inflation due to aggressive US tariff and immigration policies could lead to economic contraction and increased volatility in monetary policy [70]. Conclusion - Investment Strategy: The strategy moving into 2025 emphasizes a preference for US assets, maintaining some allocation to cash for flexibility, and being prepared for potential market rotations driven by policy changes [66][58].