Julius Baer is forecasting high single-digit returns this year after two years of strong market performance, although it underscored the risk of a correction, the Swiss private bank said in its 2025 outlook.
“After the US market’s remarkable performance over the past two years, a correction may be on the horizon amidst policy uncertainty,” it said. “We expect 2025 to be a year of capital preservation following a period of strong capital growth.”
It believes that the US would continue to outperform Europe, where broadening earnings growth would help drive returns. It is anticipating 10% returns in the US compared with 7.5% in Europe.
It noted however that the market would continue to broaden, a trend that has been observed since November’s election, which should help portfolio diversification.
Julius Baer favours cyclical stocks as the economy remains robust, particularly industrials and financials, while mid-caps would do well amid tax cuts and deregulation under the Trump administration, it said.
In contrast, it expects small caps to face greater pressure due to higher interest rates.
Elsewhere, Japan and India were its two main picks in Asia, an uncontroversial take given corporate governance reforms in the case of the former and robust economic growth in case of the latter, while it was bullish on China because of policy stimulus.
Fixed income
In terms of fixed income, the Swiss bank noted that higher inflation would normally be a bearish signal for bonds, but yields had already risen sharply in the run-up to November’s election.
Its sweet spot is the low investment grade to high-quality high yield segment, noting in the case of the latter the carry was too good to ignore even though spreads are extremely tight.
In terms of duration, it noted that long-term yields are not yet attractive so it favours bonds with maturities of three to seven years and would add duration when yields rise sharply and reduce it during sharp declines.
Elsewhere, the bank has downgraded hard currency, emerging market government bonds to neutral, but maintained an overweight on emerging market, corporate debt due to favourable technical factors such as limited net supply.
It noted however that potential trade tariffs under the Trump administration would warrant caution on this segment.
Alternatives
In terms of alternatives, Julius Bear noted the appeal of hedge funds given the fact that equity markets are currently priced for perfection so this could offer a useful hedge against volatility.
It also noted that M&A is poised to rebound given lower interest rates and laxer antitrust rules under the incoming Trump administration so this should serve as a boon for private assets broadly.
It favours large and middle-market buyout funds in relation to private equity and for private credit, it favours senior secured, direct lending strategies.
The bank also noted the benefit of investing in infrastructure as it allows investors to tap into long-term, secular trends such as decarbonisation.
