The global economy is becoming increasingly polarised. We see evidence of this polarisation in the world's major economic zones and also within sectors and companies. This is why it is becoming more challenging to invest in any given trend and we must invest selectively across and within the themes that are shaping the global economy.
As 2025 kicks off, the US and Asia are the world’s two economic growth drivers, with Europe caught in between. Asia’s economic growth is robust and the US economy still seems to be on solid footing.
We reiterated our confidence in the US this time last year. The political landscape is changing and Donald Trump has made many announcements, but we still do not know how he is going to steer his trade policy. While this is creating instability, the US economy remains dynamic. That said, we are aware of the negative repercussions that a trade war could have on the rest of the world.
Across the Atlantic, there are no signs that Europe will be able to overcome its challenges in the short term.
In Germany, the industrial sector, especially the automotive industry, continues to struggle and a trade war would only exacerbate this situation for the country that was once Europe's economic growth engine.
In France, the prospect of a solution to the country’s political crisis faded during the last few months of 2024, raising questions about its ability to attract foreign investment.
Spain and Italy are faring well, but they both need the support of a strong Europe.
Despite the risks, we would not completely rule out the possibility of a market rebound in Europe and in emerging market countries towards the end of the year.
Efforts to deliver a structural economic turnaround in Germany after the country’s snap election in February would be good news. Such a rebound is more plausible as Europe’s consumers have sizeable savings and many of the region’s businesses boast solid fundamentals.
Furthermore, Europe’s job market is healthy, and its PMI indices are very low and therefore ripe for improvement. Such a cautious climate, of course, offers investment opportunities. Especially as the market scenario is similar to the one that prevailed after Donald Trump was elected in 2016, certain sectors could perform very well over the coming years.
Sectors worth watching in 2025
If Trump and his administration manage to control a potential surge in inflation, US equities could deliver returns in the region of 10% in 2025. We have identified promising sectors, first and foremost healthcare. The sector is trading at attractive valuations and is set to benefit from technological advances, research and development (R&D) and innovation-friendly regulations.
We are also positive on artificial intelligence (AI). There are clear opportunities with the construction of many data centres and within the ecosystem of AI developers and integrators. We are not only interested in providers but also in businesses offering AI applications and those developing services based on AI technology. We are already seeing the positive effects on their earnings.
The water industry and all businesses involved in improving water access and water quality are expected to trend positively.
It could be a more challenging year for renewable energy, but we would not rule it out as it offers upside potential. As with the water industry, solutions facilitating access to energy should perform well, especially in those countries that are reluctant to make use of nuclear power. Donald Trump is not likely to reverse the development of renewable energy as it has been gaining ground in various Republican states and generating sizeable economic gains.
The water and energy sectors require infrastructure, networks, and therefore raw materials, including copper, so it will be worth watching commodity prices closely.
On the other hand, we have some concerns about consumer-related sectors. Besides facing the threat of inflation, the retail sector might also struggle to hire staff in the US once migration flows are blocked.
Assessing ESG risks and long-term opportunities
While environmental, social and governance (ESG) factors may no longer appear to be a major concern for investors, the environment, social issues and human capital continue to be essential in understanding companies and their strategies, both in the short and long term.
Despite some dithering on the regulatory front, businesses are already undergoing a transition as they understand managing sustainability issues is critical to their risk management and that they must adapt their business models if they want to remain competitive. So it remains as important as ever to factor in these criteria when assessing a company’s quality. The adaptation theme, as businesses prepare for these changes, is a promising investment trend.
Structural trends such as resource preservation, adaptation to population change and the pressing need for climate transition are among our long-term investment themes which also offer attractive short-term investment opportunities thanks to technological acceleration.
In today’s highly polarised world, continued uncertainty could create volatility. This will require businesses to be very agile and calls for an active approach to asset management.
Hervé Guez is global head of listed assets and Jens Peers is chief investment officer, sustainable equities at Mirova. The views expressed above should not be taken as investment advice.