Donald Trump's second coming brings uncertain outlook for 2025 global markets

Analysts reckon Donald Trump’s re-election as US president adds to market uncertainty for 2025
deVere Group said Trump’s America First agenda may push the US dollar higher
BetaShares forecasts bank yields should fall as central banks start to lower interest rates

Leading analysts and investment organisations have been providing their outlooks for 2025, with uncertainty surrounding Trump’s return to the White house a common theme.

While there are concerns over protectionist policies, trade wars and potential market volatility, Trump 2.0 has also inspired optimism around deregulation, tax cuts and increased infrastructure spending, particularly in the US.

Impact of America First agenda

– Founder and CEO of deVere Group Nigel Green

Green said that for global markets, Trump’s America First agenda may push the US dollar higher as investors seek safe havens amid trade disruptions.

Emerging markets, however, could come under pressure, especially those reliant on exports,” deVere Group’s CEO told Stockhead.

“Despite the challenges, sectors like defence, energy, and infrastructure are likely to benefit from increased government spending.”

Green said tech stocks were likely to remain a focal point, with investors betting on innovation to drive returns.

He noted that Australia’s market outlook will be influenced by its ties to China and the broader Asia-Pacific region.

“Geopolitical tensions, including ongoing US-China friction, could pose risks to trade-dependent sectors like mining and agriculture.

“However, Australia’s resource-rich economy may see a boost from higher demand for critical minerals, essential for clean energy and technology.”

Green added that domestically, Australian investors should watch for shifts in interest rates.

“Recent inflation data suggest that there is a possibility the Reserve Bank of Australia could start easing early in the new year.

“In this climate, a balanced approach, focusing on sectors poised to benefit from fiscal policies while hedging against geopolitical risks, will be key.”

Mixed outlook across asset classes

– Franklin Templeton

Franklin Templeton’s specialist investment managers have provided their forecast for this year on key asset classes.

Brandywine Global said fixed income investors would face elevated macroeconomic uncertainty due to possible policy shifts under the Trump administration.

“Nevertheless, after 15 years of low to negative returns from sovereign bonds, allocators are now favouring high yield credit over sovereigns,” Brandywine said.

“When it comes to currencies, the theme for 2025 is the ‘reflation force’.”

Investment firm Martin Currie sees opportunities from global equities that are being driven by three thematic trends – the energy transition, ageing populations and, most importantly, artificial intelligence (AI), which continues to bring about seismic shifts.

On the emerging market side, it believes the long-term investment outlook remains robust due to a powerful synergy of technology adoption, urbanisation and services sector growth prevalent in these regions.

Western Asset meanwhile said the US economy remained resilient and only a moderate slowdown was anticipated.

And Royce Investment Partners noted that small cap stocks have a robust and remarkably consistent record following elections.

“The asset class has experienced strong returns regardless of which party or policy goals were ascendant,” Royce said.

Royce also noted the longer-term trend of small cap stocks beating their large cap siblings following interest rate reductions but said there were, however, concerns, including tariffs, which have historically been inflationary, tamping down demand.

Bond yields should fall

– Betashares chief economist David Bassanese

Bassanese forecasts – subject to upside fiscal stimulus risks posed by Trump 2.0 – further declines in inflation and central bank interest rates cuts seeing a clearer decline in long-term bond yields in 2025 than has been evident so far this year.

“My target is for local 10-year government bond yields to fall to 3.75% by end-2025, benefiting from three RBA rate cuts (to 3.6%) and five further US Federal Reserve rates over this period,” he said.

Bassanese said that with the US Fed likely to cut rates more than the RBA and other central banks in Europe and Japan over the next year, the US dollar is expected to weaken, and the Aussie dollar may strengthen to around US 68 cents in 2025.

However, he noted Trump 2.0 could pose a risk if US fiscal stimulus or trade tensions boost the US dollar.

He said the ongoing soft-landing scenario continues to bode well for equity markets by supporting a valuation-supportive lowering in bond yields and continued good growth in corporate earnings.

“I anticipate global and Australian forward earnings growing by 13% and 10% over next 12 months, with relative weaker in financials and resource sector earnings modestly holding back local earnings,” he said.

“One challenge, however, is that equity markets are generally more expensive, which leave them more at risk to delayed rates cuts and higher bond yields.

“Even allowing for lower bond yields, I anticipate an easing back in Australia and global PE valuations from around 18.5 to 17.5 forward earnings, which would result a 7% and 4% gain in global and Australian equity prices respectively, pushing up the S&P/ASX 200 to around 8,780.

“While US tax cuts could be supportive of US corporate earnings, this benefit could be unwound if the full range of Trump’s policies place upward pressure on inflation, bond yields or global risk aversion.”