2025 marked a strong start for investors, with global equities delivering positive returns. Notably, there was a shift from the trend of the past two years, with European equities outperforming their US counterparts, and value stocks surpassing growth stocks. The debut of China’s artificial intelligence (AI)-powered chatbot, sparked questions about whether the US technology sector can still meet high expectations.
Despite concerns about recession risks, the US economy has so far remained on an even path and a soft-landing scenario is largely expected. Economic activity outside of the US has been mixed. While real wages are rising in Japan, manufacturing sector weakness has been a drag in Europe and domestic demand in China remains sluggish.
Meanwhile, the policy unpredictability of a second Donald Trump administration underscores the importance of economic fundamentals. Trade and industrial policies, including tariffs, could have significant impact on the economic outlook, leading to various outcomes that could potentially trigger periodic bouts of volatility.
Managing the impact of political & policy uncertainty
To effectively manage potential volatility stemming from elevated political and policy uncertainty, it is crucial to diversify across geographies, sectors and investment themes.
Investors could consider core-style equity strategies that emphasises selecting high-quality companies with strong fundamentals and resilient business models to navigate uncertain environments.
This is where active management can play an important role in distinguishing between meaningful signals and market noise, enabling investors to maintain a consistent approach and drive performance despite the uncertainties.
Distinguishing signal from noise
In investing, distinguishing between meaningful signals and market noise is crucial. Investors should focus on avoiding immediate reactions to market swings and maintain a steady approach to drive performance.
Equities have generally posted robust returns over the last decade even as the White House changed hands across three different administrations. This reinforces the idea that market fundamentals, rather than political agendas, drive performance.
After three years of rather sluggish earnings growth, we expect to see a better outcome in 2025. In 2025 we expect global profits to rise with earnings growing across the major industry groups in most region.
From a corporate earnings perspective, with the gap in earnings growth between mega-cap technology companies and the rest of the market is expected to narrow in 2025. This shift could signal the wider distribution of market returns, as the dominance of a few large tech companies diminishes, enabling other sectors to participate in the growth.
Shaped by a complex interplay of economic conditions, market dynamics, and geopolitical factors, the global equities landscape will require careful navigation. The evolving dynamics in technology, emerging markets and structural changes across industries underscore the importance of company-level analysis and stock selection when navigating the current market environment.
Our positioning in the JPMorgan Global Select Equity Strategy
Our JPMorgan Global Select Equity Strategy harnesses a core, style-agnostic, and research-driven approach that actively taps into our proprietary company insights and valuation signals to guide the portfolio.
There are opportunities for active managers to find undervalued, high-quality stocks. Our focus continues to remain on stock specific opportunities, and strive to maximize stock specific risk in an uncertain environment.
We see opportunities in defensive stocks over cyclicals, reflecting our cautious economic outlook and focus on stability on the back of a more uncertain economic backdrop. For long-term adjustments, we have reduced holdings in technology, and increased investments in retail and media, based on valuations, fundamental insights and a general reallocation of capital into relatively more attractive opportunities.
We invest in long-term trends with strong fundamentals and attractive valuations. We remain focused on growth and defensive sectors by making the most of valuation opportunities, and strong execution, for example through investments in high-quality companies.
Different trends are emerging within industries. The semiconductor industry, for instance, is experiencing a surge in AI-related spending, while demand in automobile sector remains low.
Looking ahead, we remain alert to potential valuation shifts that could occur as investors focus on short-term positives over stronger and longer-term fundamentals.
Conclusion
Our JPMorgan Global Select Equity Strategy adapts to market changes using a core, style-agnostic, and bottom-up research-driven approach , along with disciplined risk management.