Paris-based Edmond de Rothschild Asset Management outlines its economic and investment outlook for 2025.

Although Edmond de Rothschild Asset Management is currently tactically overweight in US equities, the firm said this week that this is likely to change as equity and bond valuations in the US are no longer attractive.

"Our base scenario is a 35 per cent chance of an American bond rally, a 50 per cent probability that US rates will remain volatile and trendless, and a 15 per cent chance that the US bond market will enter a bear market," Benjamin Melman, chief investment officer at Edmond de Rothschild AM, said at a media event.

The upshot is a 65 per cent chance that the bond market offers zero support to other risk assets sensitive to US rates. These odds alter the sentiment that emerged after the rate cutting cycle got off to a flying start with the US Federal Reserve’s 50-basis point cut. Melman sees no reason for taking major directional risks on equity or fixed income markets for 2025.

He is currently overweight in US equities, but this is set to change over the course of 2025. “Investors should pay attention to several factors that could impact US equities. These include the possible deportation of migrants and tariffs on imports. There are also questions around whether artificial intelligence can continue to meet investors’ high expectations,” Melman said. “Following massive capital expenditure in AI, companies will have to start showing more efficiency gains to maintain growth forecasts at current levels.” 

Paris-based asset manager Carmignac also believes that US firms are at the top of their game and sees opportunities in European assets which can act as a great diversifier. However, other wealth managers, such as Northern Trust Asset Management, UBS Global Wealth Management, Pictet Asset Management and Goldman Sachs Asset Management, favour US equities in 2025. See more commentary here.

Melman believes that Big Data as an investment theme will continue to dominate. “Economic resilience will be an important trend given geopolitical tensions and heighten risks of protectionism; investors should focus on companies able to withstand further disruptions to the global production chain,” he continued.

Melman highlighted how some investors view Chinese equities as no longer investable, with some wary of the country's political interventionism which is potentially unsustainable for businesses and of the major economic turnaround. Threats of US tariffs being raised to 60 per cent also weigh on China’s outlook. Nevertheless, he sees signs that the Chinese property market is stabilising following the measures implemented over the past few months. “More importantly, the Chinese authorities now have a plan to bolster the country’s deeply undervalued equity market. Household savings sitting idle in current accounts have soared in recent years,” he said. Since the stimulus package was announced new account openings have surged, boosting liquidity in Chinese equity markets. Despite its highly speculative nature, Melman said he will not be staying away from the Chinese market.

He also emphasised how European small caps struggled in 2024 due to the troubled political and fiscal situation in France, as well as the slowdown in German growth. Melman believes that Germany’s new fiscal policies will provide a welcome boost to this asset class, which is undervalued.

Melman thinks that visibility on the US bond market is set to improve over the next few months. In the meantime, he is no longer overweight in emerging market bonds, which are overly sensitive to inflation and US political developments. He is strengthening exposure to subordinated financial bonds and corporate hybrid bonds. These are issued by top rated companies and callable within the next five years. This segment of the yield curve is less reliant on the US and tied instead to the European Central Bank’s (ECB) anticipated announcements.