Jeremy Richardson, Senior Portfolio Manager, RBC Global Asset Management (UK) Limited, shares his thoughts on 2024 and the year ahead.
The Fed successfully engineered a soft landing this year. This created a productive environment for corporate profits, and helped by lower interest rates, valuations responded favourably. In turn, this drove quite a positive year for global equity investors.
We have now returned to a place where inflation and rate expectations are at levels more consistent with pre the global financial crisis. This has freed investors up to focus on company fundamentals once again.
Revenues and corporate profits are continuing to improve, as innovation, labour, and capital are applied to solving some of the world's problems. We’re seeing that play out in innovation around AI and anti-obesity GLP-1 drugs.
While 2024 gave some clarity around the economic landscape, there is uncertainty around policy priorities, with a new set of leaders in many democracies around the world.
This creates uncertainty for investors because if spending policies grow economies, it could be a supportive environment for corporate profits. However, if spending promises are spent less wisely and they adding to the sum of public debt, it could result in interest rates being forced up.
This dilemma is something that investors will have to weigh carefully, as it brings into conversation how we value those future profits in a world of rising rates.
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Transcription
2025 Market View – Global Equities
Jeremy Richardson, Senior Portfolio Manager, RBC Global Asset Management (UK) Limited
Jeremy : Coming into 2024, there was a big debate about whether or not higher interest rates needed in order to tame inflation was going to end up stalling the real economy. Well, that question was resolved last year. The Fed successfully was able to engineer a soft landing, reducing inflation but at the same time maintaining profit growth. That created quite a productive environment for corporate profits, and helped by lower interest rates, valuations responded favourably, making overall quite a satisfactory year for global equity investors.
Ever since the pandemic, there's been a debate about what the new normal should look like. It feels as though in 2024, that debate was concluded with inflation expectations back now to levels which are much more consistent to where they were prior to the financial crisis. The same goes for real interest rates too. This is actually not a bad setup for capital markets generally because it means now that we should, having put the macro conversation to one side, now create space for investors to once again focus on company fundamentals.
Those company fundamentals are improving in many areas with revenues and corporate profits continuing to improve as innovation, labour, and capital get applied to solving some of the world's problems. We're seeing that in areas like, for example, the innovation around artificial intelligence, which is on the cusp of moving from being an enterprise-only, business-oriented tool to something which may actually end up in the hands of consumers in the year ahead.
Same thing in healthcare, where the anti-obesity GLP-1 drugs have the potential to really shift the demand curve for medications for many years to come. This is all quite exciting for investors. But nevertheless, there are some things that we need to bear in mind which may inform how 2025 progresses. That really comes down to, I think, a lot of the elections that we had in 2024 because although 2024 gave us some certainty about what the economic context would look like, it also gave us a new set of leaders in many democracies around the world. Those leaders bring with them a new set of spending policies.
This actually creates some uncertainty for investors because if those spending policies lead to wise choices, which grow the economy, it can actually be a supportive environment for corporate profits. However, if those spending promises are not spent so wisely and don't end up growing the economy, but just add to the sum of public debt, it could end up forcing up interest rates. That dilemma is something that investors will be having to weigh very carefully because it brings into conversation about how we value those future profits in a world of rising interest rates.