Bluebell’s Deep Dive: How 4 B-L-U-E Themes Can Beat the Market in 2025
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As we approach the end of the year, many investors will be reviewing their portfolios. 2024 has been a bright year for financial markets, despite some periods of volatility. Most major asset classes, including US stocks, Asian stocks, real estate, gold, and cryptocurrencies, have delivered strong returns.
However, the world of investment must move forward. At the end of the year, we must look ahead and ask, “What will the investment market be like in 2025?” Will most assets deliver strong returns like they did in 2024? Therefore, we would like to share our interesting investment outlook for 2025 with four investment themes: B-L-U-E.
- Build Portfolio on the America First Policy
With the return of Donald Trump and his core “America First” policy, the United States is expected to grow stronger in all respects. Therefore, our investment portfolios should also be adjusted to an “America First” strategy, aligning with the policy of the leader of the world’s superpower.
We recommend that in 2025, investors’ core portfolios should include U.S. equity funds. This is because Trump’s policies are highly supportive of the U.S. stock market continuing its upward trend. For example, corporate tax cuts could help listed companies increase their earnings per share. Furthermore, Trump’s tariff policies and immigration policies are likely to help Americans increase their income and consumption, which will in turn drive economic and stock market growth, particularly for small-cap companies that primarily generate revenue domestically.
We believe that in 2025, U.S. equity funds, whether investing in large-cap or small-cap stocks, have the potential to continue generating positive returns. However, we anticipate a greater focus on small-cap stocks. This is because their valuation levels are more attractive than those of large-cap stocks, and many companies are beginning to rebound from losses to become more profitable.
- Lower interest rates trend
Global interest rates are expected to continue their downward trend after major central banks implemented cuts in 2024. The primary country to monitor is the United States, as its policies have a significant impact on global monetary direction.
We anticipate the Fed will cut interest rates three times in 2025, which should boost market sentiment and limit the downside risk for the U.S. stock market next year.
The current yield on the 10-year U.S. Treasury bond, which has climbed to the 4.3-4.5% range, is believed to have already factored in the impact of import tariffs on other countries. If the Fed follows through with the three cuts (0.75%) as we expect, the 10-year Treasury yield will likely fall to around 3.75%.
In this environment of declining interest rates, assets like REITs and fixed-income instruments have the potential to deliver strong returns in 2025. For fixed-income funds, we recommend choosing those with a longer average duration of about three years or more to maximize returns as interest rates fall.
- Upturn in Asian market
We believe that Asian stock markets have the potential to continue their upward trend in 2025, driven by a strong economic growth outlook. The IMF estimates that emerging Asian economies, including China, India, Indonesia, Thailand, and Vietnam, will achieve a growth rate of 5.1%. This compares favorably to the 1.8% growth forecasted for developed markets in 2025. Furthermore, the region’s attractive valuations and solid corporate earnings add to its appeal.
As for fund flows, we expect the US dollar to potentially begin weakening in 2025, similar to the 2016-2017 period when the dollar strengthened after Trump’s election victory and then began to depreciate the following year. This weakening of the dollar would support an increase in capital flowing into Asian markets.
We recommend investing in countries with strong economic and corporate earnings growth prospects, as well as geopolitical neutrality. These include the Indian stock market, which has outstanding high economic growth driven by the government’s continuous use of fiscal deficit policies to support the economy. Also recommended is the Vietnamese stock market, where the government supports the business sector, driving long-term national growth, increasing foreign investor confidence, and preparing for an upgrade to an Emerging Market in 2025.
- Expand The AI Opportunity
Over the past two years, the technology sector has seen a strong and continuous rally, led by the seven largest U.S. tech stocks, or the MAG7. We expect this trend to remain robust next year, as the earnings of these companies continue to grow at a high rate. Additionally, many tech-related industries, such as Healthcare, AI, Cloud Computing, and Data Centers, are still developing and may introduce new innovations that further drive the sector’s growth.
However, beyond the large-cap tech companies, we believe that other tech stocks outside the MAG7 are equally compelling. According to consensus data, U.S. tech stocks excluding the MAG7 are forecast to have an earnings growth rate of 36% and 17% over the next two years, respectively. This is higher than the 21% and 14% earnings growth rates projected for the MAG7 group over the same period.
We recommend that investment portfolios in 2025 continue to hold MAG7 stocks due to their strong outlook. However, you should also increase your investment in other technology funds that are more broadly diversified across a wider range of tech stocks.
In conclusion, we believe that 2025 will continue to be a good year for the investment market. While there is a chance of facing increased geopolitical risks from the return of Donald Trump, when considering various factors, we find that the fundamentals of both the U.S. and Asian economies and stock markets remain strong. This, along with continued accommodative global monetary policy, will remain a supportive factor.
We recommend that investors structure their portfolios according to their acceptable risk level. The portfolio should have a Core Portfolio invested in groups with strong trends, such as large-cap U.S. stocks, technology stocks, and foreign fixed-income instruments, making up 60-80% of the portfolio. This should be supplemented with a Satellite Portfolio to generate additional returns, including stocks from India, Vietnam, and U.S. small-cap stocks, making up 20-40% of the portfolio.
