AI and Automation
In 2025, artificial intelligence (AI) stands out as the most important investment theme as it begins to enter the mainstream and revolutionise all aspects of our lives. This is a multi-decade theme that will advance exponentially. While there is a lot of hype, I believe most people are dramatically underestimating the opportunities and developments in this space. This is technology that learns and improves rapidly. This is an arms race, and the winners will redesign the future of the world. To be clear, there is no sector or industry that will be exempt from the change ahead.
America First
For someone who is often portrayed as unpredictable, President Trump is completely predictable in prioritising America’s interests first. Trump will extract every ounce of economic benefit for the USA in every situation. It's not unreasonable, and in many ways, the rest of the world has been able to coast on the back of the US. This theme includes areas beyond big tech, such as manufacturing, national security, defence and cybersecurity. While the rest of the world adjusts, the clear winners from this are US businesses, large and small. From an investment perspective US listed companies are well positioned to benefit and easily our preferred geography internationally.
Trump, Tariffs and Trade Wars
This theme dovetails into Trump’s America first strategy, and while very real, it's easy to get caught up in all the noise. Much of the headlines Trump creates aid the theatre of his negotiation. However, don’t underestimate Trump’s focus on getting an outcome that will ultimately optimise the USA’s global position. For a nation such as China, where the US wants to level the pricing playing field, they can expect an escalation in the rhetoric and actions from the US that can potentially lead to a trade war. Similarly, with Europe, it's only a matter of time before Trump turns his attention to various perceived inequalities in the relationship. These are likely to be a more sustained policy shift than those we have seen with Mexico and Canada, which were more transactional.
Energy Demand
The global demand for energy continues to rise, driven by population growth, industrialisation in emerging markets, and the increasing electrification of economies. Nations are transitioning to cleaner energy sources such as solar, wind, and battery storage. However, fossil fuels remain crucial in the near term, particularly for energy security and industrial applications. Additional demand for energy globally will require new energy infrastructure, costing trillions in capital investment over the next decade. This new demand, combined with the significant underinvestment in traditional energy over the past decade, will create more opportunities than ever to capture long-term returns in the energy sector.
China Economic Pain
The world’s second-largest economy faces structural challenges. Real estate problems, high debt levels, weak consumer demand, and geopolitical tensions—especially with the U.S.—may weigh on growth. The Trump presidency will likely escalate trade restrictions, further straining China’s exports and supply chains. Global markets may see deflationary pressures from weaker Chinese demand, impacting commodities and multinational firms with China exposure. While China remains uninvestible in my opinion due to unpredictable government, investors should expect economic volatility and reassess China-dependent assets.
Europe Economic Pain
In 2025, Europe faces sluggish growth, high debt burdens, and geopolitical uncertainty. Structural challenges, including weak industrial output, aging demographics, and energy dependence, may limit economic resilience. Ongoing tensions with Russia, potential trade disruptions from a second Trump presidency, and ECB policy constraints could add to the region’s struggles. I see risks in European equities and the euro, while opportunities could arise in U.S. and emerging markets benefiting from capital outflows. Sectors like luxury goods and autos, heavily reliant on global demand, may face headwinds. At the same time Europe is already being hit by China’s slowdown in consumer spending and the prospect of tariffs from the US.
Geopolitical Tensions
Geopolitical tensions have been elevated since Russia attacked Ukraine in 2022. Heightened uncertainty from factors like trade disputes, regional conflicts, and shifting international alliances lead to volatility in stock markets, commodities, and currencies. As tensions continue, investors may turn to safe-haven assets like gold, bonds, and certain defensive stocks while diversifying portfolios to hedge against risk. Additionally, sectors like defence, energy, and technology are all likely to experience growth, driven by government spending and demand for national security.
Private Debt Bubble
There is pain to come from this area. While unlisted assets certainly have a place and can be attractive opportunities, there are several downsides. The biggest one being that it's far more difficult to exit the investment. The rapid growth of this sector in recent years almost certainly means that at some point the music stops and the bubble bursts. With interest rates remaining elevated in many regions due to ongoing inflation risks, companies face higher refinancing costs, putting pressure on their balance sheets. Keep in mind these investments are typically exposed to higher risk borrowers and are often the most vulnerable to a downturn.
Debt & Deficits
The ability of governments to manage debt loads without triggering market instability is critical. But with ever increasing deficits from higher government spending, sovereign bonds will face volatility, while higher borrowing costs will impact growth at some point. The US stands out because of the colossal size of both its debt (US36T) and deficit (US$711Bil), but make no mistake, this is a global issue. The sheer amount of new debt the US needs to raise each year is huge and requires large investment. At some point that forces prices up, which means higher interest rates and that reverberates around the world.
Stagflation
With anaemic growth and inflation remerging, stagflation is beginning to look like the base case for the UK and much of Europe in 2025. That is an unattractive economic backdrop for investors looking at the region. If stagflation takes hold on that region, the overriding concern will be whether this presents risks for the global economic outlook. If inflation remains elevated due to persistent supply chain disruptions, energy price fluctuations, and labour shortages, economic growth could struggle to keep pace, leading to weaker consumer spending and business investment. In this environment, traditional asset classes like equities and bonds may face headwinds.
General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.