Global equity market 2025, where will the journey take us?
Another investment year is coming to an end. Time to look ahead: what will the markets bring in 2025? Our head of Equity Knut Hellandsvik gives his forecast for the global stock markets in 2025, from the US to Europe over Japan. Enjoy the read!
2024 is lining up to be yet another great year for the global equities market as the MSCI World Index (MXWO) is up more than 20%. Since October 2022, the index is up a whopping 60% and the question is if there is further upside ahead or is it time to cash in?
Predicting the future of equities market is not an easy feat – something the past five years has taught us. It has been a period of filled with so called black swan events – occurrences one would almost never expect to happen. These range from the global pandemic to full scale war on the European continent. Despite all the negative headlines, the global equity market has proven resilient and has given patient investors fantastic returns. The US equity market, however, has been the main driver for global equity performance. In fact, over the last decade the US share of MXWO has risen from 54% to 76%. All of the 20 largest companies in MXWO are now American and the first non-US company is ranked number 23rd (Novo Nordisk).
American Exceptionalism
Many are talking about “American Exceptionalism” and, in the world of equities, it is certainly a real phenomenon given the US stock market’s dominance. Since the beginning of 2020, S&P 500 and Nasdaq 100 have returned 100% and 146%, respectively. During the same period, Eurostoxx 600 has returned 41%, Nikkei 225 76% and MSCI Emerging Markets a miserable 11%. Clearly, a lot of the U.S. outperformance is driven by the large US tech companies led by the Magnificent 7 (Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia and Tesla). With the emergence of generative artificial intelligence as the most recent kicker, these companies have seen their combined market cap go up 200% during the last two years alone. As a result, these seven companies now account for over 30% of the S&P 500 index and the 10 largest companies make up 36% of the same index. These 10 US stocks represent more than a quarter of MXWO which the greatest concentration we have experienced in history.
All major regional markets have seen a rise in valuation during 2024. Not surprisingly, US is leading the way here as well. The 12-month forward PE for the US equity market is well above its previous 20-year high and mean. The same is true even if you exclude the big tech names. By comparison, Japan and Europe are trading in line with their 20-year mean whereas China is trading below that level. Given this backdrop, what should we expect from the global equities market in 2025?
