If was Corporal Jones from Dad’s Army who used to utter that immortal phrase, “don’t panic”. It’s advice retirees watching the value of their portfolios shrink in response to Trump’s economic nostrums should heed.
While the APRA funds benefited from a surge in overseas equity markets in 2022-23, over the past five years to June 30, 2023, SMSFs have outperformed them, on average, by 1.2 percentage points a year.
Investors urged to hedge their global equity bets in 2025
For self-funded retirees exposed to the US equity market in 2024, it couldn’t get much better with the bellwether S&P500 index notching a 23 per cent gain – the fourth 20 per cent plus increase since 2019.
Doing much of the heavy lifting were the Magnificent 7 – Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia and Tesla – that contributed 54 per cent of the index’s return and now account for slightly more than a third of its market capitalisation.
Such a strong market performance begs the obvious questions for investors – can the S&P500 repeat this performance in 2025, especially with a Trump presidency and all its attendant geopolitical and economic risks?
Last year, the market was attracted to the likelihood of a Trump win on a policy platform that was pro-growth, lower taxes and deregulation. But now he is ensconced in the White House, investors are not so sure with higher tariffs likely to increase inflation and geopolitical tensions, especially those with traditional allies that have 80 years of history.
As the research house Chant West noted in its January commentary, Trump’s tariff threats shook markets at the end of the month.
“At the same time, we saw the US tech sector take a hit on the back of claims that the Chinese start-up, DeepSeek, had trained its generative AI capability to produce results comparable with the market leaders at a fraction of the cost,” Chant West senior investment research manager Mano Mohankumar (pictured) says.
So, while the market is edgy about US equities – especially in the wake of two strong years – there remains a belief that while the Magnificent 7 might come back to the field this year, equity gains will broaden to include other companies.
Senior portfolio manager Brent Puff and client portfolio manager Bernard Chau at the US investment house American Century Investments say it’s not just other S&P500 companies where gains can be expected, but also other markets such as Germany, Japan and Taiwan.
“Despite poor economic growth, the MSCI Germany index delivered its second consecutive year of double-digit returns. Car makers lagged, but German industrial companies benefited from global themes such as electricity generation and European defence spending.
“In Asia, the MSCI Japan index increased more than eight per cent. The long-dormant Japanese market has been revitalised by the return of inflation, changes in corporate governance and a larger focus on digitisation initiatives.”
They are also cautiously optimistic on China, noting stocks ended last year in positive territory after the government announced multiple initiatives to reinvigorate demand. However, with 70 per cent of China’s household wealth tied to property, weakness in this sector remains a major drag on the economy. Elsewhere, the MSCI Taiwan index outperformed the S&P500.
The analysts identify three themes that will influence global markets in 2025 – AI, rising energy demand promoting infrastructure spending and the positive outlook for financial services firms.
“Companies continue to invest significant resources in developing large-language models, directly benefiting semiconductor and software companies,” they say. “AI could also become an incremental growth driver as more companies incorporate AI-powered agents and similar tools into their software offerings. PwC estimates AI could add $US15.7 trillion ($AU24.7 trillion) to the global economy by 2030, with 45 per cent of economic gains coming from product enhancements.
“On the energy front, AI requires massive amounts of power. According to McKinsey & Co, US data centres represent three to four per cent of the country’s energy demand, and this could grow to between 11 and 12 per cent by 2030.”
They maintain that increased activity in capital markets could drive earnings for financial services companies.
“Contributing factors include a more supportive regulatory environment in the US and stabilisation of interest rates that could lead to increased debt trading and issuance. A lack of organic growth in Europe could encourage businesses to seek growth through mergers and acquisitions.”
