Sydney Property Market Update: Trends and Insights – January 2025
admin January 23, 2025 Sydney Property Market Update: Trends and Insights – January 2025 Sydney’s property market saw a notable...
December 17, 2024
The Five Key Questions for Investors in 2025
Feeling punch-drunk after 2024? You ain’t seen nothing yet.
Investors have been buffeted by major forces over the past 12 months—higher-for-longer interest rates, stretched valuations in equity markets, persistent geopolitical tensions, and sticky inflation. Yet, they have emerged with impressive scores on the board.
US equity markets are on track to deliver a second consecutive year of 20 per cent-plus returns, while the ASX 200 continues to grind higher to record levels. Private credit has provided healthy returns, crypto has soared, gold has surged, and residential property has once again been a clear winner.
Can the good times keep rolling? Many strategists remain bullish as inflation under control sets the stage for potential rate cuts, and US president-elect Donald Trump prepares to take office with a pro-growth policy agenda. This, combined with the US equity market serving as one of his key performance indicators, has created a positive outlook for investors.
However, it’s during times like these—when momentum is strong and the crowd is heading firmly in one market direction—that a moment of reflection is worth considering. By stepping back, you may uncover overlooked opportunities amidst the broader enthusiasm.
Here’s our take on the five big questions investors should be asking themselves as they head into 2025. Be careful out there – things are likely to get very interesting indeed.
What will Donald Trump actually do?
No idea. Next question, please!
In all seriousness, Trump’s return to the White House is not only the most fascinating news story of 2025 but also the biggest cloud hanging over the markets. The challenge lies in the fact that Trump’s policy agenda is inherently contradictory: having risen to power by promising to combat inflation, his push for tax cuts, tariffs, and immigration restrictions could create renewed pressure on inflation.
However, the surge in equity markets following Trump’s election victory suggests that investors don’t believe he will follow through on any policies that might hurt the market.
“The assumption seems to be that a ‘transactional’ Trump would ultimately look to negotiate favourable deals, that Trump instinctively links successful economic policy with a rising equity market, and that he will likely have a seasoned Treasury secretary from Wall Street by his side,” says Barclays economist Christian Keller.
Barclays has taken a stab at modelling Trump’s agenda, assuming 30 per cent tariffs on China and 5 per cent on the rest of the world, extending current cuts but refraining from introducing new ones, slowing immigration, increasing deportations, and not implementing major deregulation initially. The bank’s verdict?
“We expect the impulse from Trump’s policy mix to be stagflationary for the US, even if not with an immediate impact. Globally, the growth impact should be negative, though the effects on inflation are less clear. In terms of monetary policy, this likely means higher near-term rates in the US, while the opposite could occur in other countries.”
“That said, even if Trump’s policies may be directionally negative for global growth and inflation, the global economy is starting from a healthy point, particularly in the US. With our assumption that the policies ultimately implemented will be less extreme than those proposed during the campaign and implemented with lags, the macro environment remains relatively benign for now.”
Barclays is maintaining its forecast for 3 per cent global growth. However, as its modelling indicates, there is a huge number of moving parts, and Trump’s policy announcements can’t truly be priced in. Perhaps investors would be better off trying to tune him out completely, though that will be easier said than done.
Where is the world’s most important market heading?
Clearly, the direction of the S&P 500, Wall Street’s key benchmark and the global proxy for risk, will largely depend on what Trump brings to the table. However, David Kostin, Goldman Sachs’ US strategist, anticipates a reasonable year ahead. He has set a target of 6500 for the S&P 500, implying growth of about 9 per cent from current levels. Goldman projects earnings rise for Wall Street of 11 per cent in 2025 and 7 per cent in 2026.
At first glance, that sounds pretty good. But as Kostin notes, the starting point matters. The price to earnings ratio of the S&P 500 has increased by 25 per cent over the past two years and now stands at 21.7 times. In historical context, the market has only been more expensive 7 per cent of the time, which calls for caution.
Kostin emphasizes that high valuations are not necessarily a signal of weak near-term returns, but they can magnify the market downturn when negative shocks occur.
“An equity market already pricing in an optimistic macro backdrop and carrying high valuations creates risks heading into 2025,” Kostin warns.
Can the ASX 200 keep grinding higher?
Australia’s equity market hasn’t seen explosive growth like Wall Street’s – with 10 percent growth compared to 20 percent – but there is one key similarity: expensive valuations. The difference, however, is that Australian earnings growth has remained flat over the past 12 months, making the local market’s grind higher even more puzzling.
Morgan Stanley’s strategist Chris Nicol points out that the ASX 200 is currently at a level where earnings should be 13 percent higher than they actually are.
So, what’s the outlook for next year? Nicol’s target for the end of 2025 is 8500 points, suggesting very little price growth, but an 8 percent total shareholder return when dividends are taken into account.
Nicol would like to see a rotation out of the expensive banks and into the miners, but that may be tough if Trump’s tariffs pour even more cold water on Chinese growth.
What about real estate?
While the outlook for Australian house price growth tends to dominate discussions—SQM Research’s Louis Christopher predicts a fairly muted growth rate of 1 to 4 per cent next year, contingent on a mid-year rate cut—there exists a broader world of real estate opportunities for investors to explore.
UBS Global Wealth Management highlights the resurgence of fundamental economic principles. “Market conditions vary across regions, but overall, robust demand for real estate is meeting constrained supply.”
Post-COVID-19, limited construction activity in both commercial and residential sectors, driven by increased regulation and high costs, has led to a scarcity of new, quality space, even in the challenged US office market.
In commercial real estate, UBS favors strategic investments in logistics, data centers, telecommunications towers, non-discretionary retail, and high-quality office buildings located in the middle of cities. For residential properties, the firm is bullish on apartments, as well as senior accommodation and student accommodation.
What could be the surprise global story of 2025?
A Trump-adjacent storyline could revolve around the return of the deal. Deregulation, particularly changes to America’s competition regulatory regime, is expected to spark a run of mergers and acquisitions. Morgan Stanley forecasts a 50 percent jump in deals by 2025, driven by falling interest rates, strong equity markets, and a more friendly regulatory environment.
While we may face election uncertainty in the early months of the new year, lower rates and robust equity markets should still boost deal activity in Australia.
A rebound in IPO activity – which has been stalled in Australia for three years – could be the cherry on top of any deal-making splurge. Fund managers are eager to see fresh meat at the right price, and local investment bankers are keen to bring companies that have been sitting on the sidelines into the spotlight.
For further insights and personalized advice on navigating the investment landscape in 2025, feel free to get in touch with us. We at Ash Buyers Agency are here to help you make informed decisions and identify the best opportunities for your investment portfolio. Reach out to us at +61 434 111 200.
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