As the end of the year approaches, investors are looking back on an eventful 2024 and starting to prepare for the trends that are likely to emerge in 2025. The 2024 investment landscape has been defined by an uncertain macroeconomic environment, geopolitical conflict, and huge strides in technological developments.
Investors had to navigate shifting interest rates, inflationary pressures, the AI revolution, political uncertainties, and a heightened focus on environmental, social, and governance (ESG) factors – albeit not always a positive focus. Looking back and understanding the key trends of 2024 will put investors in a stronger position to evaluate likely trends and the market impact into 2025.
Looking back on 2024:
The key themes that emerged in 2024 include but not limited to:
- Interest Rates and Inflation: A Mixed Picture
After a period of aggressive rate hikes by central banks worldwide in 2022-2023, the trajectory of interest rates in 2024 has shown signs of stabilization in many economies. However, central banks remain vigilant as inflation, while moderating, continues to hover above long-term targets in some regions. Despite this, the US Federal Reserve started cutting rates with a jumbo 50bps rate cut in September this year. We’ve maintained a view that this rate cutting cycle will be a fairly shallow one, and following the Federal Reserve’s November meeting, indications are that the path forward is no longer as certain and steep as originally estimated by analysts.
Key take aways:
Bond markets have seen increased activity as investors assess opportunities in fixed income amid higher yields.
Equity markets are showing resilience, with the technology sector contributing most to strong performance, although valuations remain sensitive to monetary policy changes.
Real estate markets, traditionally sensitive to interest rates, are showing mixed signals, with commercial real estate facing headwinds while residential markets stabilize in regions with cooling inflation. South African Real Estate Investment Trusts (REITs) have been a standout performer during 2024 with the overall SA REIT market up 32% over the past year.
- The AI Boom: A Defining Moment for Technology
Artificial intelligence remains a transformative force in 2024, driving investment across sectors. From generative AI tools reshaping industries to AI-powered automation boosting productivity, the momentum continues to grow. Nvidia remains a key pillar and driving force around the US technology sector as a whole, a key risk that investors will need to mitigate going into 2025.
Key take aways:
Venture capital and private equity have been heavily focused on startups innovating in AI and machine learning. Large-cap tech stocks remain a favourite among institutional investors, with companies integrating AI into their business models seeing significant valuation boosts. Ethical concerns around AI governance are emerging as a key discussion point, influencing both regulation and ESG-focused investing, with the massive energy consumption requirements being an area of focus for the long-term growth of this area.
- Geopolitical Tensions: Ukraine, Israel, and Global Markets
The ongoing conflicts in Ukraine and Israel continue to weigh on global markets, influencing commodity prices, supply chains, and investor sentiment.
Ukraine Conflict:
Energy markets remain volatile, with European dependence on alternative energy sources increasing. Defence stocks have seen a surge in investment as countries bolster military budgets, with stocks like Palantir Technologies and Lockheed Martin performing strongly over the year.
Israel Conflict:
Regional instability has affected investor confidence in emerging markets in the Middle East, though opportunities remain for long-term infrastructure and energy investments. Global markets are responding cautiously, with safe-haven assets like gold and the US dollar attracting attention amid geopolitical uncertainties.
- The US Election: Another Trump Term
The 2024 US presidential election saw Donald Trump and the Republican party winning convincingly. US markets in particular reacted extremely favourably to the outcome with the US economy being placed as a top priority within the Trump campaign, while other top priorities like deregulation and immigration pose both risks and opportunities for investors. Trump is to take office in 2025 and time will tell whether positive sentiment will continue once he takes the reigns. Investors will have to keep a close eye on US politics leading into 2025, with debates around taxation, infrastructure spending, and trade policies that could reshape market dynamics.
- ESG Investing: Evolving Expectations
Environmental, social, and governance (ESG) investing continues to gain traction, though the landscape in 2024 reflects a more pragmatic approach. The focus shifted toward measurable outcomes and accountability.
Key take aways:
Green energy and sustainability-focused investments are thriving, driven by regulatory incentives and investor demand. Companies are under increasing pressure to deliver transparent ESG metrics, leading to a rise in greenwashing concerns and stricter audits. Social factors, including diversity and labour practices, are receiving greater scrutiny, aligning with broader societal shifts.
Looking forward to 2025:
For investors many of the same trends from 2024 are likely to continue into 2025, with a few trends worth considering. Investors need to position themselves strategically to capitalize on emerging opportunities while managing potential risks:
- Persistent AI and Automation Expansion
The transformative power of artificial intelligence (AI) and automation will continue to accelerate, with profound implications across sectors. The next phase of the AI boom will likely focus on practical applications that drive operational efficiency, enhance decision-making, and open new revenue streams. A key implication of AI developments for investors to consider is whether the capital spent will result in the buoyant forecasted revenue and shareholder profit growth as a result.
- The Energy Transition Gaining Momentum
The global push toward a greener economy is expected to accelerate in 2025, driven by regulatory mandates, technological advancements, and shifting consumer preferences, although US President-Elect Trump has been outspoken against ESG, and his presidency could pose risks for clean energy investments, and more of a focus on traditional energy. ESG will continue to be a key focus point for investors with many funds looking at balanced scorecards before investing.
- A Pivot in Global Supply Chains
The disruptions of the past few years have prompted a revaluation of global supply chains. In 2025, companies will focus on increasing resilience and reducing dependencies on single regions. Investments in localized manufacturing hubs, particularly in North America and Europe, are expected to rise. Countries in Southeast Asia, Africa, and Latin America are becoming alternative hubs for global manufacturing and logistics.
- Geopolitical Realignment: Risks and Opportunities
Geopolitical shifts will continue to influence markets, with ongoing conflicts and alliances shaping investment decisions.
Key regions of focus in 2025:
- US-China relations: Tensions remain a key driver of investment strategies, with opportunities in domestic innovation and technology sectors in both regions. The Trump administration has been tough on China in the past with imposed tariffs and has already signalled an intention for these to increase going forward.
- Europe’s evolving role: The EU’s focus on technology, defence, and renewable energy will create investment opportunities, particularly as the region strengthens autonomy.
- Middle East and Russia Ukraine stabilization effort: Ongoing wars and trade restrictions could have severe impacts on markets globally into 2025.
- Inflation and Interest Rate Balancing
While inflation rates may stabilize in many economies into the new year, central banks are likely to maintain a cautious stance, keeping interest rates elevated compared to pre-pandemic levels.
Key considerations:
Fixed income revival: High-yield bonds and Treasury Inflation-Protected Securities (TIPS) will remain attractive diversifiers, with the fixed income asset class overall, including government and corporate debt, expected to play a more valuable role in multi asset portfolios going forward.
Real assets: Commodities, infrastructure, and real estate will gain favour as inflation hedges. Gold has performed incredibly strongly over the last year and even longer, acting as a valuable diversifier for investors amidst macroeconomic and geopolitical uncertainty.
Growth vs. value: Investors will need to balance growth-oriented tech investments with value stocks in stable sectors like utilities and healthcare. The retail sector cannot be ignored should further rate cuts continue into the new year.
- Health and Biotech Innovation
The healthcare and biotech sectors are on the cusp of breakthroughs, driven by advancements in gene editing, personalized medicine, and AI-driven diagnostics. Investors should consider the sector in combination with the potential for AI to accelerate progress. 2025 is expecting to see a wave of new biotech companies entering the public markets, backed by strong pipelines.
In Closing:
Lessons learned and trends identified from 2024 must be carried into the new investment year. Investors should be looking to:
- Diversify geographically to manage risks tied to geopolitical and economic uncertainties.
- Embrace innovation by allocating capital to sectors like AI, green tech, and biotech.
- Monitor central bank policies to adjust fixed-income and equity allocations effectively.
- Prioritize ESG alignment to capture long-term value in sustainable investing.
- By staying agile and informed, investors can position themselves to capture opportunities while managing risks in a rapidly evolving global landscape. 2025 promises to be a year of innovation, resilience, and transformation, offering a wealth of opportunities for those prepared to navigate the complexities. 2025 is set to be another eventful year full of opportunities for those prepares to look and work hard enough for them.
By Renzi Thirumalai, Chief Investment Officer at FNB Wealth and Investments
