1Q25 Investment Summary

Macro Policy
Further cuts forthcoming from the Fed and ECB though speed of easing remains up for debate, while the BOJ’s gradual rate hiking should continue despite potential delays from political changes. We see room for further PBOC cuts.

Economic Outlook
The US economy continues to demonstrate resilience, while weak growth persists in Europe as key exports face sluggish demand. China likely to push for further stimulus to bolster domestic consumption.

Equities
Maintain preference for US equities, over Europe and Japan equities, based on elevated corporate margins, resilient domestic consumption, strong AI-related capex, and potential expansionary policies from Trump. ASEAN to continue benefitting from rate cuts and China+1.

Credit
A gradual easing trajectory is expected on economic strength. Prioritise A/BBB buckets for best risk-reward in a tighter spread environment. Overweight 2-3Y and 7-10Y segments to manage reinvestment risk and capitalise on wider spread curve rolldown respectively.

Rates
Expect lower rates from the Fed but the trajectory is likely to be bumpy as market participants navigate Trump 2.0 which includes large tax cuts, tariffs, and fiscal deficits.

Currencies
The USD to remain on the front foot as the Fed tapers its dovish trajectory and Trump 2.0 starts to deliver on its policy platform. EUR and RMB most vulnerable to tariff threats.

Alternatives
Remain structurally bullish gold on rising US fiscal deficit despite recent consolidation; lean into a portfolio approach involving both private and public assets. Consider semi-liquid vehicles for liquidity management.

Commodities
Expect volatility to persist in the short term; potential tariff hikes under Trump 2.0 pose demand risk for industrial metals and agricultural commodities while US energy security agenda to cap oil prices. Coffee and cocoa continue to outperform on resilient global demand amid a challenged supply.

Thematic focus: Sports Investments
The sports economy has garnered significant momentum, is driven by the rapid growth of live sports streaming, increasing enthusiasm for women’s and youth sports, and the meteoric rise in the popularity of esports competitions. Key beneficiaries of this trend include: (i) sports analytics, (ii) streaming, (iii) ticketing, and (iv) sports video gaming.

As we enter 2025, the global geopolitical and economic landscape remains as complex and nuanced as ever. The recently concluded US presidential election in particular, would have far-reaching implications for markets and risk assets globally. With the Republicans capturing both the Senate and House of Representatives, Trump’s administration now has a clear mandate and significant power to push through any policy agenda on Capitol Hill, be it tax cuts, climate change, or border security.

As such, the prevailing assumptions of imminent recession and acute Fed rate cuts are no longer applicable. Instead, US macro momentum is now expected to shift into high gear as Trump looks to fulfill his policy promises of tax cuts and expansionary fiscal spending. Growth optimism notwithstanding, there are deep uncertainties surrounding the arrival of Trump 2.0, namely the fiscal sustainability (or lack thereof) of his policy plans and the possibility of a trade war due to his proposed tariff hikes.

Against this backdrop of expansionary fiscal policies and heightened geopolitical tensions, we believe a “barbell” approach towards portfolio construction is warranted. This is achieved by taking extremes in terms of positioning: (a) seek exposure to highest beta sectors and ride the upside of Trump’s expansionary policies; and (b) seek exposure to the most defensive asset classes and shield portfolio performance from the downside of Trump’s policies.

To navigate expansionary Trump policies, we have upgraded our position on equities from underweight to neutral. We maintain an overweight position on US equities as impending taxation cuts are expected to elevate corporate margins. On a sectoral front, we continue to favour US technology for its secular growth potential and high beta of 1.4 times global equities (over a 10-year period), which will allow investors to reap significant upside as the new administration rolls out tax cuts and deregulation policies.

To mitigate trade war risks, we stay overweight on fixed income as it provides downside protection should trade tensions escalate in a more severe fashion than anticipated; the risk reward is also attractive with bond yields back at 4.4%. We also remain underweight Europe equities as they are poised to underperform given that US tariff hikes will compel Chinese exporters to redirect their goods to non-US markets, which will in turn heighten competition.

Beyond the immediate ebbs and flows of policy winds on Capitol Hill, one should also not neglect the longer-term macro drivers that will determine the trajectory of markets beyond the near-term noise surrounding Trump’s presidency. We believe that risk assets will remain well-supported by the following factors in 2025: (1) a US soft landing, robust job market, and low interest ratios cushions companies from trade tensions, supporting resilient corporate margins; (2) rising household net wealth and record-low household debt as a percentage of GDP (71%) supports domestic consumption; and (3) rapid advancement of artificial intelligence (AI) is expected to drive significant productivity gains.

DBS Chief Investment Officer 1Q25 insights: Game Changers key investment takeaways