BNP Paribas Wealth Management (WM) is sticking with its overweight to global equities going into 2025 despite looming tariffs.
Global equities have enjoyed two back-to-back years of double digit gains, but investors should expect less upside this year.
This is according to Prashant Bhayani (main picture), BNP Paribas WM’s chief investment officer Asia, who said at a media briefing in Hong Kong on Monday that the firm does not expect tariffs to derail the current bull market.
Looking back in history, Bhayani noted that since 1973, in order for a bear market to occur, there either needs to be a recession in the US, or the Fed to be raising rates, or both.
He said: “We don’t think the Fed’s going to raise rates, we can debate how many cuts there are, and we don’t expect a recession. So that’s why we’re still overweight.”
“But of course, there could be less upside, because we wouldn’t expect the same level of returns.”
After enduring a 17.7% loss in 2022, the MSCI World index rebounded, delivering a performance of 24.4% in 2023 and 19.2% in 2024.
Bhayani also pointed out that despite growing fears there is a bubble in artificial intelligence (AI) stocks, he said when the Fed is not raising rates, these “so-called bubbles don’t pop”.
Tariffs are largely priced-in
Last week Trump put a pause on imposing 25% tariffs on Canada and Mexico, but followed through with a 10% tariff on China.
Bhayani said the firm does expect tariffs overall to increase, “but gradually over time” and added they could actually be taken away “if there are deals to be done”.
He said: “A universal tariff, say 25%, on Canada and Mexico for one year and six months, would be inflationary, but anything short of that would be roughly expected by the market.”
When it comes to the internal drivers of the US economy, he suggested that the productivity gains being enjoyed by the US are somewhat underappreciated.
“US productivity is outperforming Europe. This helps you grow faster with lower inflation,” he said. “Productivity is probably the best gift you can give to an economy and for standard of living.”
“Clearly with the investment in AI capex, we’re starting to see some improvement in productivity.”
When it comes to rate cuts, the firm expects more rate cuts outside of the US, which should bode well for financial assets.
Now that US Treasury yields have risen to the 4.5% level, Bhayani said the firm has shifted back to overweight bonds too.
“With 10-year yields in the US at around 4.5%, if inflation is 3%, your real yield after inflation is positive,” he said.
“That wasn’t the case when we had zero rates. So yes, corporate spreads are tight, but overall, given our view, we’re turning more positive on bonds again.”
