In 2024, “The Year of Answers”, visibility improved on the state of the world, supporting positive returns for most asset classes. We believe that in 2025, the focus will turn from the present to the future, with "Winds of Change" from new leaders, policies and technologies. National and regional agendas should prevail over global topics, creating divergence, volatility, but also opportunities.

ECONOMIC OUTLOOK

Our Emirates NBD Research Team expects a stable but moderate global growth in 2025, similar to 2024 on aggregate but with regional differences. The US should continue to shine while the Euro area is in a more lackluster configuration. China and India should marginally slow.

By contrast, headline GDP growth in the GCC should accelerated to a very solid 3.5%, with a strong performance from non-oil sectors, and a diminishing year-on-year drag from the oil sector.

ASSET ALLOCATION

As for the long-run, our models suggest lower expected returns for the decade ahead compared to the previous one, as well as a growing appeal for some alternative asset classes.

The year ahead should be volatile, around potentially spectacular policy decisions from major economies, and potential overreaction from financial markets. The permanence of US exceptionalism could be challenged at some point, but we do not expect an overly aggressive stance from the new US administration.

We start 2025 fully invested, with limited active positions, as the coming weeks will provide a lot of information on US policy, China stimulus or European elections.

We overweight quality government bonds with a reasonably long duration, and are neutral on other segments of fixed income. We are also modestly overweight on both cash and stocks from developed markets. We underweight hedge funds, as well as, slightly, global REITS and stocks from emerging markets.

Overweight: DM Government bonds (duration 5-7 years), slight OW cash and DM equity

Neutral: Corporate and emerging market bonds (IG and HY), Gold

Underweight: Hedge Funds, slightly UW Global REITS and EM equity.

FIXED INCOME

We see 2025 as a year of regime change for fixed income investors, which implies some level of volatility and potential turbulences. Still, there are positive news: the defensive end of the fixed income universe is attractive, which is why we favor quality government bonds which should provide decent returns, as they usually do after a bear-steepening episode. We are more neutral, for the time being, on other segments, as spreads are historically tight. GCC bonds provide attractive yields while we expect another year of high issuance.

EQUITY STRATEGY

2025 should not be about passivity for equity investors, as changing regional dynamics, led by policy impulses, will meet currently polarized valuations. The good news is that with a still favorable macro environment and positive AI sentiment, we expect continued earnings growth momentum to support markets overall, despite limited likelihood of multiple expansion. Whilst volatility remains on our radar, our outlook suggests a 10% return for global equities. We start the year by following positioning: overweight the US and Japan within developed markets, while favoring India and the UAE in emerging regions.