Capital market commentary from Karin Kunrath, Chief Investment Officer of Raiffeisen KAG
The consensus estimate for global economic growth remains unchanged (good) at just over three per cent. In regional terms, the USA is still expected to have the highest momentum within the developed world, but the forecast is currently slightly lower than for 2024 - in Europe, on the other hand, growth is expected to be slightly better than recently, albeit at a significantly lower level. Real growth in the global emerging markets is also expected to be slightly higher in 2025, although growth in China is expected to be slightly lower than this year.
As far as inflation is concerned, a further decline is expected in almost all regions of the world, as are further interest rate cuts by the central banks. The outcome of the US election and the economic policy measures announced could have an inflationary effect, which would have a particular impact on the Fed's interest rate path over the course of the year. At the micro level, the optimistic expectations for corporate profits, particularly in the US, remain intact, although the sectoral distribution of profit contributions should be much more balanced than in the last two years, in which there was a very high dependency on the largest US growth companies. Higher earnings growth is expected in Europe in 2025, while the positive earnings momentum in the emerging markets is likely to be somewhat lower than in the previous year.
With regard to geopolitical risk factors, the principle of hope that the existing armed conflicts can be ended or at least no longer escalate continues to apply. However, global economic tensions are likely to increase significantly in view of the trade restrictions already announced by the newly elected US administration. Despite all the uncertainties, the general conditions on the capital market for 2025 appear quite constructive from today's perspective, both for equities and bonds. We are therefore entering the new year with a neutral stance.
Overview of asset classes
Government bonds
Yields likely to fall further
We continue to expect yields on EUR government bonds to fall and remain optimistic for this bond class. We are positioning ourselves not only towards falling German government bond yields, but also in anticipation of falling risk premiums on Italian and French government bonds compared to German government bonds. We are less positive on US and Canadian bonds because we expect yields to fall more sharply on the EUR market than overseas, where the economic situation is noticeably better.
Corporate bonds
Debt service ratios remain solid
The credit spreads of EUR high-yield and investment-grade corporate bonds are still close to their lows and are therefore more susceptible to corrections. While EUR high-yield risk premiums have recently risen moderately (albeit within the normal fluctuation range), investment grade risk premiums remain extremely low. However, the key debt service figures for the corporate sector remain very solid. We remain slightly optimistic about EUR investment grade corporate bonds. We are sticking to our more cautious positioning for EUR high-yield corporate bonds.
Emerging markets bonds
Risk premiums show resilience
The risk premiums of emerging market hard currency bonds are similarly resilient to those on the corporate bond market. We still consider this bond class to be attractive relative to other spread asset classes. Economic activity in the emerging markets has recently improved and also surprised on the upside.
Developed equity markets
Solid earnings performance
The international stock markets, led by the USA, have remained very firm in recent weeks. The very solid earnings performance in recent months has provided support. In our view, expectations for the coming quarters can certainly be regarded as optimistic. In addition, our indicators are currently showing a very mixed picture, so we are sticking to our neutral stance for the time being.
Emerging equity markets
Performance experiences setback
Concerns about how the emerging markets will fare under a Trump presidency are currently having a very strong impact on relative performance against developed equities. This has reached another low. Companies based in the manufacturing sector in particular could be severely affected by a renewed protectionist trade policy. It will therefore be all the more important to see in the coming weeks how statements materialize and who the people involved will be.
Commodity markets
Precious metals continue to rise
The international commodity markets have presented a mixed picture in recent weeks. Cyclical industrial metals again suffered price losses and energy commodities were also weaker. The precious metals sector was able to make further gains despite higher yields. We are currently not holding any positions in commodities as part of our tactical asset allocation.