Fund manager predictions for US, UK and other markets in 2025
Will 2025 be a repeat of this year? Sam Benstead looks into what fund managers are predicting.
31st December 2024 09:49
by Sam Benstead from interactive investor
As 2024 draws to a close, it is natural for investors to look ahead at what the next 12 months might bring for equity markets.
While nobody has a crystal ball, it’s possible to get clues about what will happen to stock markets by looking at valuations, developments in technology, and the political and economic environment.
This time last year, investors were optimistic about stock markets generally, but expected the largest tech stocks to fall behind and smaller companies to be better performers.
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However, the largest tech firms were again among the top performers, which boosted US and global indices, with returns above 20%.
But what are the professionals predicting for 2025? We look at how some of the major stock markets could perform.
What could happen to US shares?
After rising 26.5% in sterling terms in 2024, could 2025 be another standout year for the US stock market?
Fund manager abrdn says that US earnings could grow “strongly” next year in America, and the gains could spread beyond tech and artificial intelligence (AI) winners, which would provide a “fundamental basis for stock market performance”.
BlackRock also likes the US market as the investment manager thinks more companies will begin to benefit from AI, and pricey US equity valuations alone will not trigger weaker stock market performance. However, its Investment Institute analysts say that it is ready to adjust this view if markets become “overexuberant”.
On the other hand, abrdn warns that elevated US equity valuations bring risks, with the valuation gap between US and European stocks now at a record high.
Peter Branner, chief investment officer at abrdn, adds: “We expect continued strong US GDP growth in 2025 driven by a cooling but still solid labour market and strong corporate profitability, and slightly stronger growth in 2026 boosted by tax cuts and deregulation. Against this backdrop, we’re positive on developed market equities as the outlook for US earnings growth remains strong.”
The fund group highlights the opportunities in smaller US companies. It argues that corporate tax cuts will tend to benefit smaller companies most, while by contrast tariffs will disproportionately hit internationally exposed firms.
And what about the UK?
The FTSE All-Share index rose 9% this year, including dividend reinvestment. However, nearly all that return came by May – the second half of the year was nearly flat for the UK market as investors began to worry about the impact of a tax-raising Labour government.
Looking ahead, the low valuation of the UK market, as well as a high dividend yield of 4%, could be the catalyst for share price appreciation.
This is according to Ben Russon and Richard Bullas, UK fund managers at investment manager Martin Currie.
They say: “This currently unloved asset class is trading at historically (and internationally) low valuations while offering access to a diverse range of interesting companies benefiting from an under-appreciated UK economic strength.”
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The fund managers add that on top of the 4% dividend yield, companies are buying back on average 2% of their shares a year.
The counterpoint for the UK market is that there are doubts about the economy. Russon and Bullas say: “Markets are now back moving on economic data; each inflation release, Purchasing Managers’ Index (PMI) data update, and confidence survey, will be poured over by the market until it’s clear how the UK economy is fairing under its new leadership.
“We remain positive that the UK economy is in much better shape than it’s given credit for and remain focused on finding the best opportunities at a stock level. After all, company fundamentals are what matter and will drive returns over the long term.”
How will other markets perform?
Emerging markets are tipped to perform well next year. Fund manager Fidelity International says that India will again be a bright spot for long-term investors, even though the market rose 13.5% this year.
The group says: “Although some foreign flows are taking profit after the recent rally, and extreme weather is disrupting agriculture, the country’s prospects remain solid, underscored by advantageous demographics and investments in infrastructure and manufacturing. And that’s why domestic investors are still buying.”
The most popular India fund on the platform is Jupiter India I Acc, which returned 23.5% in 2024.
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abrdn is positive on China, arguing that economic growth is recovering and further policy easing, such as via interest rate cuts, is likely.
“With valuations low, the asset class provides an attractive option on the possibility of China delivering significantly more policy easing,” the fund manager said. It thinks further easing is necessary to offset both internal headwinds from the property sector and low inflation and external headwinds from US trade policy.
BlackRock’s views is that investors should look beyond broad asset classes, including regions.
For example, it sees relatively cheap valuations in Europe, particularly in financials and European beneficiaries of the AI build out.
It adds that Japanese stocks also stand out among developed markets as a brighter outlook for Japan’s economy and corporate reforms – including stock buybacks – are driving improved profits and shareholder returns.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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