Change is constant, but in some periods it occurs more dramatically than in others. We believe the world is currently undergoing a transition at a pace and scale rarely seen before. Technological advances are driving extraordinary innovations in artificial intelligence (AI) and healthcare. Continued geopolitical tensions and the likelihood of increased tariffs around the world following the US elections will likely lead to reconfiguration of supply chains, disruption of labor supply and a strong focus on the secure energy transition . At the same time, the global economy is adapting to a world of higher trend inflation, higher rates and greater volatility.
The transition to this degree can seem daunting. However, we believe it will bring with it a set of opportunities of a breadth and richness not experienced since the aftermath of the global financial crisis (GFC). The nature of this opportunity set will inevitably evolve as markets change, but in our view the general trend will be for earnings growth to expand beyond a handful of dominant technology stocks, both across sectors and across the regions.
As we navigate this new balance, our portfolio construction themes advocate for greater diversification across asset classes. Bond yields have been on a rollercoaster, as markets have been overzealous in pricing bank rate cuts. High-yield bonds, bank loans and emerging market bonds present income opportunities.
We are likely past the early stages of AI infrastructure development. However, the AI wave is not over: as companies employ it, we will see an acceleration in speed, productivity and innovation. At the same time, we believe that the conditions are in place for a golden age in the healthcare sector, amid a wave of radical innovations.
We also believe it is prudent for investors to consider diversifying into areas that have strong valuation support and fundamentals, such as value and small-cap stocks. Additionally, there are select opportunities in undervalued sectors such as the energy, the financial and the industrial. Countries like Japan and South Korea could also benefit from structural changes.
The year 2025 is shaping up to be a transition year marked by a clear expansion of investment opportunities. In this evolving world, curiosity is vital. Asking smart questions about new opportunities – within asset classes or big themes such as healthcare innovation, energy transition or artificial intelligence – is the best way to gain insights to make smart investment decisions.
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