Market commentary: Dec 2024
Investment performance
The second half of 2024 backed up the first half nicely to provide solid overall returns for the full year. The main contributor was international equities powered by ever higher valuations of the big US tech companies. The market is expecting - and paying for – strong future growth largely on the back of developing artificial intelligence. Are we near a peak? There are indications so we have moved client portfolios a notch toward a more conservative setting.
Predictions for 2025
It’s the start of a new year and a time to ponder what lies ahead in investment markets. Always fascinating and the possibilities are endless - and impossible to guess. “Prediction is very difficult, especially if it’s about the future”. A great quote that wholeheartedly applies to investing!
Here are some thoughts from Capital New Perspective Fund (one of our international equity fund managers) on the year ahead. We like the way they think.
Trump presidency. Is seen as business friendly with proposals for tax cuts, increased defense spending and deregulation. To the contrary, tariffs could trigger trade conflicts with China and potentially reignite inflation. Potential beneficiaries are US banks, energy, healthcare, and aerospace. Potential laggards are companies at risk from tariffs, and the renewable energy sector.
Tech companies (Google, Apple, Microsoft etc). Excitement over the transformational potential of artificial intelligence (AI) remains sky high, as does investment. AI is certainly a mega trend but is the current spending excessive and growth overestimated?
Non tech companies. AI along with other trends such as the rollout of electric vehicles and reshoring of manufacturing in the US provides opportunities for companies outside the tech sector. For example, building products, machinery, aerospace, transportation and logistics.
Small companies (value less than US$6 billion). These have been trading near their cheapest valuation in more than 20 years relative to large companies. Often overlooked, innovative companies in this sector could be poised for a comeback this year.
European industrial companies. Capital spending in the US is driving opportunity for nimble European companies. Examples are: aerospace/defence, specialised equipment for global data centre build out, and manufacturers of durable materials that boost energy efficiency.
Balance essential for the year ahead. The team at Capital feel that there are clear reasons to be optimistic about investing in 2025 but also risks, including lofty valuations of many companies and the potential for disruptive trade conflicts. It’s important to remain diversified and not to be overexposed to any specific trend. The fund is aiming to strike a balance, looking for leading companies in well recognised areas like AI, but also in less scrutinised areas of the market.
Richard Grimes, CERTIFIED FINANCIAL PLANNER (CFPCM), Director and Financial Adviser