Monthly House View - March 2025 - Download here 

The return of Donald Trump to the White House has certainly captured the media’s attention, especially with the rapid pace at which he has been issuing executive orders. His aggressive stance on tariff implementation has taken many geopolitical experts by surprise. “Hit first, discuss later” seems to be his new mantra, as evidenced by the initial reactions from Canada and Mexico, which suggest a potential shift towards more cooperation on immigration issues and possibly some form of allegiance to his administration. The critical question remains whether pro-growth policies will ultimately triumph over protectionist measures.

INFLATION: SHOULD WE BE WORRIED?

A full-scale tariff war, leading to uncontrolled escalation and long-lasting tariffs, benefits no one, especially American consumers. While the January inflation spike raised some concerns, it was primarily driven by seasonal factors, akin to the inflation scare we experienced in the first quarter (Q1) of 2024. Higher consumer inflation expectations are making headlines, although this increase is notably influenced by political bias, particularly among Democratic voters.

The potential impact of tariffs and immigration policies remains a key concern for investors. Despite market volatility and negative headlines, United States equities reached a new peak in February, buoyed by stabilising bond yields and a robust earnings season that saw improved company margins. This reinforces our confidence in maintaining a pro-risk stance.

EUROPE: CAN IT SUSTAIN ITS MOMENTUM?

Despite the noise surrounding tariffs, Europe has emerged as the second-best performing equity market this year, with the EURO STOXX 50 reaching its highest level in 25 years, primarily due to re-rated valuations. The resolution of the Ukraine conflict and a revision of Germany’s debt brake are two catalysts that could drive continued outperformance of European stocks.

The bull case is based on three factors: valuations remain attractive on a relative basis, a weaker euro should benefit earnings, and an easing central bank. However, Europe needs three things to happen: continued improvement in activity data, a pickup in earnings, and a return of investment flows. With 2% earnings growth in the fourth quarter (Q4) for Europe versus 11% for the US, the gap between the two regions is evident. We await additional catalysts before revising our outlook.

CHINA: GREEN SHOTS

Among major equity indices, the Hang Seng has been the best performer so far in 2025. The 10% tariff announced on China was at the lower end of expectations. Additionally, China’s technological advancements in Artificial Intelligence (AI), exemplified by DeepSeek, have driven a surge in tech-related Chinese companies.

We also see positive signs in the broader economy: vehicle sales have reached new highs, the Chinese Golden Week box office revenue was the highest on record, and property prices in new home sales are improving. Our Chief Strategist for Asia, Francis Tan, remains optimistic, suggesting that this could be the beginning of a prolonged but gradual improvement for China and the rest of Asia.

GOLD: NEW HEIGHTS

Meanwhile, bullion has surpassed its October peak, reaching new highs. Latest data from the World Gold Council indicates that central banks bought over 1’000 tonnes of gold last year for the third consecutive year running. The People’s Bank of China resumed its gold purchases in November after a six-month pause, aiming to diversify its reserves. The enthusiasm for gold extends beyond official institutions, with Gold ETF holdings in China hitting an all-time high, reflecting widespread investor interest. Additionally, China recently announced that insurers can now invest up to 1% of their assets in gold, further driving demand. We remain positive on gold, as this structural shift in global demand is unlikely to wane anytime soon.

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_{Monthly House View, 21.02.2025. - Excerpt of the Editorial}