Global financial institutions (GFIs) almost unanimously agree that US equities will outperform in 2025, according to a research report on global financial institutions by Natixis Investment Managers (Natixis IM).
Almost 95% of GFIs researched are overweight US equities going into 2025 compared with just over half who said the same at the start of 2024, the report found.
This marks a major shift in the outlook from institutions after continued outperformance of US equities in 2024 and the outcome of US elections.
GFIs on average expect 2.3% GDP growth in the US, driven by productivity gains, de-regulation and tax cuts – but this is largely depending on the policies of Trump’s new US administration.
“2024 was the year of elections, so politics was seen as the biggest risk for markets. This year, GFIs see policy as the biggest uncertainty,” said Julien Dauchez, head of portfolio consulting & advisory at Natixis IM.
“In particular, policy uncertainty under the new Trump administration is raising concerns about the outlook for inflation, Fed policy, and the impact on earnings and asset allocation.”
Avoid cash in 2025 and look to emerging markets
Almost all of the GFIs researched in the report also said they are underweight cash in 2025, a major increase from the same last year.
As central banks are expected to continue cutting interest rates in 2025, the report found that there was an “almost unanimous” theme in outlooks from GFIs to reduce cash holdings and redeploy it into income generating assets.
“With US individual investors currently sitting on $2.8trn in cash, according to ICI data, investors are expected to seek new income opportunities as the Fed continues cutting interest rates,” Dauchez said. “However, GFIs are cautious, as this shift could lead to markets potentially overheating.”
When it comes to other asset classes, the report found that GFIs have also grown more positive on the outlook for emerging markets in 2025.
However the views on individual markets within the asset class are increasingly divergent, with China as a focal point.
The report said most GFIs expect continued economic challenges for China in 2025 due to the ongoing real estate correction and doubts over whether stimulus policies will revive growth effectively. There is also looming concerns about renewed trade tensions with the US under Trump.
Markets such as India and Indonesia however have been singled out as bright spots, the report found.
“These nations are seen as more self-sufficient, with controlled inflation, and strong domestic markets,” it said. “They are also less dependent on the US or China for exports, making their growth prospects more favorable.”
Dauchez said: “GFIs are taking a much more nuanced, segmented approach to emerging markets, rather than viewing them as a homogeneous block.”
“Even previous sub-categories in this asset class, such as ‘Asia Pacific ex-Japan’ are being broken down further within asset allocations to be more targeted – this is a trend that will likely continue in the coming years.”
