Global Equities

The US GDP growth rate of 2.6% remains supportive of a resilient macroeconomic backdrop, driven by robust consumer spending and strong corporate earnings in technology and financial sectors. Forward earnings estimate for 2025 are forecast to grow at ~10% YoY, led by AI-driven tech, financials, and industrials. However, margin pressures persist in discretionary sectors due to wage inflation and rising costs, while the labour market stability should provide support for domestic demand, but we must watch consumption patterns for the lower- and middle-class households as this could limit consumption in the latter half of 2025 should inflationary pressures re-emerge.

The forward P/E of the S&P 500 remains elevated at 21.5x earnings, the 30-year average is 16.9x earnings, indicating limited room for upside in aggregate unless we see a meaningful acceleration in company earnings.

Large-cap tech companies continue to dominate momentum indicators, supported by inflows and AI-driven optimism. The top 10 stocks in the S&P 500 account for ~38% of market capitalisation, reflecting increased concentration risk. Despite this, we note a broader participation in earnings growth emerging. 

This outlook for US equities suggests continued optimism around tech and AI investment with the potential for a broader economic recovery, and sector shifts favouring growth stocks over defensives, being tempered by concerns about inflation and political risks. 

In the Eurozone, GDP growth remains subdued at 1.2%, constrained by weak industrial production, particularly in Germany, and persistent inflation. Corporate earnings are forecast to grow at low single digit levels in 2025, with healthcare and utilities leading the defensive sectors, while industrials and materials may struggle due to input cost pressures.

Eurozone equities trade at a 13.9x forward P/E, which is broadly in line with historical averages, but do offer a relative discount to global equities. UK equities provide attractive valuation opportunities, with high dividend yields and depressed valuations in energy and financials. Fund flows into European equity funds remained positive in January 2025, reflecting improving investor sentiment. Shorter term performance for European equities has improved, however, medium-and long-term momentum on both a relative and an absolute basis remain weak but are improving.

Japan GDP growth is forecast at 2.10% for 2025, supported by improving corporate governance and robust export activity amid yen weakness. Earnings growth of 8% in 2025 is expected, led by technology and automotive sectors, while domestic consumption remains stable due to government stimulus. The impact of reshoring trends in the semiconductor and high-tech supply chains could provide additional upside for Japanese manufacturers.

Japan equities are trading at a trailing P/E of 15.72x, which is significantly below both US and the broader global market, with attractive dividend yields and share buybacks supporting valuations. Export-heavy sectors, like technology and autos, remain undervalued relative to global peers.

Technical support levels indicate strong buying interest from both domestic and international investors, particularly in export-driven sectors. Despite the consolidation in the market for most of 2024, in absolute terms, Japan is looking solid across most timeframes and technically has reached levels where we may see a potential bounce higher.

Forecast emerging market (EM) GDP growth of 4.2% for 2025 is being driven by strength in Asia, particularly India and Southeast Asia, which are benefiting from AI investments and supply chain realignments. Earnings growth is projected at 18% for 2025, led by technology and consumer sectors in Asia, while Latin America remains challenged by commodity volatility.

The forward P/E multiple of EM equities is 11.87x earnings which remains significantly below developed markets, offering attractive long-term entry points. Regional valuation disparities provide opportunities, with India and Taiwan trading at premiums, while Brazil, Mexico, and the UAE remain undervalued.

EM and Asia are weak in the shorter term, while Asia on a medium term and longer-term basis is on the verge of breaking lower. Flow data suggest a sharp turnaround in positive flows towards China.