Asian local government bonds are positioned to perform well in 2025, supported by accommodative central banks amid an environment of benign inflation and moderating growth. We expect Asian corporate
and bank credit fundamentals to stay resilient, aside from a few sectors and specific credits which may be impacted by tariff threats or US policy changes.
Many may expect the incoming Trump administration's transactional approach to be detrimental to the geopolitical and macroeconomic landscapes. However, we believe that Washington's mercantilist stance
should not prevent Asian markets from offering attractive absolute returns, as was the case during the 2017-2021 period under Trump's first term.
In 2025, US economic growth is expected to continue due to fiscal stimulus, despite above-target inflation. Meanwhile, the strong dollar could face disruptions, the Bank of Japan may keep raising
interest rates and China is seen balancing domestic stimulus with potential US tariffs. European growth may recover slowly due to US tariff risks, and global central banks' policies will likely
diverge to manage these challenges.
New Zealand's economy is faced with challenges including a weak currency, low productivity growth and slowed immigration. However, there are potential posi'tives, such as declining interest rates and
possible gains in longer maturity bonds. Ultimately, recovery will require time and effort, with the central bank playing a crucial role.
Our outlook for 2025 is relatively positive. We expect the business-friendly stance of the Republican Party, coupled with easier monetary policy, will be supportive for risk assets, particularly in the US market. While we hold various views, we rely on our strategic asset allocation to guide our long-term outlook—with healthy equities, short-dated credit, the US dollar and gold forming our backbone for the medium term.
We believe that a changing political environment could present opportunities across asset classes in 2025, with fixed income in particular poised to benefit as markets adjust to more realistic inflation expectations.
While 2024 was characterised by broad market gains (or “beta” returns) in Singapore, we expect 2025 to be more centred on generating excess returns (or “alpha”). We believe the service economy, represented by financial services and transportation, will continue to contain key sectors which offer high sustainable returns, positive fundamental change and growth.
With Japan overcoming deflation and ushering in a period of progress and consolidation despite market volatility and political upheaval, we expect Japanese companies to make strategic decisions in
2025 that attract global investors in larger numbers.
Asian local government bonds are poised to perform well in 2025 thanks to accommodative policies by central banks amid benign inflation and moderating growth. The global easing cycle is expected to lower global yields, thereby providing additional support to Asian bond markets.
Throughout history, equity investors have benefitted from maintaining a long-term view and an optimistic outlook on humanity's ability to prevail in the face of adversity. This might once again be the
case, meaning that the biggest risk might be not having exposure to the highest quality earnings streams through a diversified portfolio of global equities.
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