
Four key themes are expected to command investors' attention this year, according to Morgan Stanley Capital International (MSCI). Chief research officer Ashley Lester summarises them as follows:
- US policy could further deepen economic divergence: Higher tariffs, coupled with potential trade tensions, may dampen global growth and could drive inflation higher in the US.
In the euro zone, the dominant impact of tariffs would likely be to weaken business sentiment and influence long-term investment decisions, adding to existing economic challenges, consistent with the drop in yields in the euro zone since the US election.
- Technology and trade will shape equity markets: Technology-driven growth -- particularly in artificial intelligence (AI) -- continues to shape market narratives.
A few mega-cap US stocks, especially AI-related firms, dominate global equity capitalisation and have driven significant returns. These stocks trade at high valuation premiums due to expected strong earnings growth, but their attractiveness is now being questioned based on rising costs and moderating forecasts.
Geopolitics and technology have deepened regional divides, with US tariffs adding uncertainty. MSCI's analysis shows around 20% of global corporate revenues are policy-sensitive. US tech firms may be insulated from trade risks, while smaller emerging markets face higher exposure and potential revenue impacts.
- Asia sets the pace of the energy transition: China has been a major contributor to Asia's increased energy consumption. The country's aggressive push towards renewable energy has seen significant investments in solar and wind power, alongside a steady increase in natural gas usage.
Even for investors with little direct geographic or sector exposure to Asian energy markets or commodities, the ripple effects of these trends are far-reaching, and will continue to be felt through products and supply chains.
Geopolitical tensions and investor disagreements on the pace of the global energy transition could hinder climate change efforts, disrupt supply chains and increase costs. The MSCI Climate Value-at-Risk model indicates that extreme warming scenarios could lead to significant equity losses.
Private markets appear poised to turn a corner slowly: The years since 2021 have been challenging for investors in private assets, as rapid changes to interest rates caused them to reassess their underwriting of assets and how they view their allocations in a multi-asset context.
The bid/offer spread has widened for certain strategies with asset valuations becoming more uncertain, leading to stalled transactions. Looking at buyouts, investments exited since 2022 have done so at a lower valuation multiple (Ebitda/total enterprise value) than those investments still held by funds. We see this as more driven by US-based investments, with the rest of the world faring better.
There are important sectoral differences within the private equity universe across the world. US-focused private equity funds lean more towards investments in information technology.
In global real estate, the lag between public and private markets is particularly evident since the onset of Covid-19. Listed-market price movements clearly led. Private valuations corrected most strongly in Europe, the Middle East and Africa, while the US and Asia-Pacific continued to see price falls.
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