Quarterly investment letter – 1st quarter 2025
Summary points
- The US economy showed resilience, with 2.8% GDP growth driven by robust consumer spending and AI investments, despite vulnerabilities from subdued business and government expenditures.
- Donald Trump’s presidential victory prompted market shifts, driving gains in US small- and mid-cap equities on deregulation expectations, while tariff policies amplified global stagflation risks, particularly in trade-dependent regions.
- US equity markets hit record highs, driven by disinflation and solid growth, albeit tempered by cooling consumer spending and labour market challenges.
- Eurozone GDP grew by 0.4% quarter-over-quarter in Q3, supported by recovering domestic demand, despite ongoing challenges in the manufacturing sector.
- China’s economic challenges endured, with growth constrained below 5% by a property sector downturn and limited fiscal measures, as policymakers prioritised domestic consumption amid external pressures from tariffs.
- Conclusion: With a severe recession highly unlikely, the positive bias on risky assets remains, though equity exposure may be adjusted if economic growth deteriorates. Active management is essential in a low-growth environment, given heightened disparities across companies and sectors. Credit investments, particularly loans and non-cyclical short-term high-yield bonds offering 7–9% yields, are favoured. While equities maintain appeal, the current market environment supports an absolute return strategy over a traditional relative value approach.
We invite you to review our complete 1st quarter 2025 investment letter, which includes a more detailed look at the regional macroeconomic backdrop, market consensus forecasts, and more.
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