What are the major risks for investors in 2025? Chief Investment Officers announce their predictions
- Asset Risk Consultants asked 98 CIOs about the biggest risks investors faced
Uncertainty about what 2025 has in store for investors is high as the new year begins.
Donald Trump is preparing to assume the US presidency following his resounding election victory in November, heralding the possibility of heightened tensions with China.
Concerns also remain about inflation and the US stock sector being strongly tied to the fortunes of the big tech sector.
In the latest edition of its quarterly market sentiment survey, investment advisory firm Asset Risk Consultants asked 98 Chief Investment Officers what they thought were the biggest risks facing investors this year.
One of the top fears highlighted by CIOs was the likelihood of a trade war between China and the US under a second Trump administration.
Concerns: CIOs warn that a trade war between the US and China could impact investors
US to increase trade tariffs on China
With the inauguration of the new president set to take place later this month, there are fears that the US is on track to increase trade tariffs.
While these are expected to impact a number of countries, with Canada and Mexico expected to face tariffs of 25 percent, the bulk of the new tariffs could be imposed on goods coming from China.
Trump has promised to add an additional 10 percent on top of the new tariffs. According to Reuters, the average tariff that experts say will be levied on Chinese goods is 38 percent.
German Central Bank President Joachim Nagel said earlier: “At this point, the biggest source of uncertainty for the forecast is a possible global increase in protectionism.”
If Trump implements these policies as expected, there will almost certainly be retaliation from China and possibly other targeted countries.
James Cooke, deputy CIO at ARC, said: ‘The reality is that many of the risks are linked.
“Trade wars combined with a slowdown in China could lead to increased tensions in Taiwan, raising fears about the production of advanced semiconductor nodes, which would in turn impact many of the Magnificent Seven.”
Stocks dominated by big tech
This leads to the second major concern facing investors. The US stock markets are dominated by a select few companies, largely made up of the Magnificent Seven: Amazon, Apple, Tesla, Microsoft, Meta, Alphabet and of course Nvidia.
The latter has gone from strength to strength in 2024, gaining as much as 185 percent since the start of the year.
Nvidia shares are trading at $134.29 each on Jan. 2, with the chipmaker alone accounting for more than six percent of the S&P 500 index.
Overall, the Magnificent Seven accounts for about a third of the index’s value. By 2024, this meant the S&P 500 grew by almost 25 percent, compared to the FTSE 100’s paltry five percent growth.
However, this also means that the fortunes of the main US index are comparable to those of just seven companies, and if the AI bubble bursts, these fortunes could quickly reverse.
Despite this, the ARC research shows that net sentiment towards shares has risen from 21 percent in the past twelve months to 56 percent.
However, sentiment towards European and British shares has declined, while bonds have also fallen out of favour.
Inflation has not gone away
Another concern among CIOs is the prospect of further inflationary pressure on economies, potentially leading to a slower reduction in interest rates.
Cooke said: ‘An excessive rise in inflation could force central banks to tighten monetary policy more aggressively and the money supply is a significant drag on returns on risky assets.’
He added: ‘On the plus side, there is still quite a lot of cash in money market funds or ‘dry powder’.
‘We wouldn’t be too surprised to find that 2025 is a year of heightened animal spirits and increased merger and acquisition activity, which is generally good for share prices, especially of slightly smaller companies.
“Maybe this means we will actually see the broadening of the equity markets that many managers were talking about this time last year.”
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