The 2025 outlook for global equities

• We believe that 2025 will bring moderate economic growth as major central banks continue to cut interest rates, supporting global equities
• Our positive view on equities is tempered by a degree of caution after two years of strong returns
• The start of the year is a good time to ensure you have the optimal blend of equities and bonds

Overweight equities as inflation normalises

Returning to Counterpoint 2025, we favour a slightly overweight position in equities and, within that, prefer US equities as stimulus, economic growth and rate cuts should support them. We’re also overweight European short-dated government bonds as the European Central Bank continues cutting interest rates and as yields are more attractive than those offered by corporate bonds.

As inflation normalises in the near term, we expect central banks will continue to cut interest rates, reaching around 3.5% in the US and UK, and 2% in the eurozone. However, US economic policies could prove inflationary over longer horizons. The US is nevertheless expected to remain resilient, supported by fiscal stimulus, while UK and eurozone growth will likely be weak.

At the same time, the elevated valuations that US big tech companies command are a risk. To moderate that, we recently invested in an equal-weighted index, rather than a traditional market capitalisation-weighted index. This has the effect of reducing tech-stock weightings while increasing those in financial and industrial stocks that may benefit if Trump administration policies broaden the rally.

Of course, no one has perfect foresight and there are risks to our generally positive scenario. In my view, the biggest of these is that a central bank makes a policy mistake, keeping interest rates high for too long.

Moderating Nordic home bias

What should Danish or Swedish investors do to position themselves for this year? Notably, they should look beyond their domestic equity markets to capture the best that global markets have to offer.

In all countries, investors have a home bias. Danish investors tend to be overweight Danish equities and Swedish investors overweight Swedish equities. After all, such investors are better informed about them than they may be about foreign firms. The issue with home bias is that you can end up with significant exposure to a few big local stocks, such as Novo Nordisk or Spotify, but nothing in companies elsewhere in the world that may deliver far better returns.

At Quintet, we specialise in providing Nordic clients with global perspective. While we believe that 2025 will be supportive for global equities, even if performance may fall short of recent years, it’s important that you use the beginning of the year to embrace common sense by ensuring you have the optimal blend of global equities and bonds to achieve your investment objectives.