Equity markets faced a rocky start to 2025, weighed down by fading AI enthusiasm and new U.S. tariffs. However, recent trade negotiations and strong earnings from AI-related companies hit hardest during the sell-off are helping restore confidence. Despite this rebound, significant uncertainty and the potential for escalating geopolitical tensions suggest markets could see more turbulence ahead.
That said, we remain optimistic about companies driven by durable secular trends. Those with strong pricing power, resilience to tariffs, and competitive advantages are better positioned to navigate volatility. Businesses demonstrating above-average growth in this environment are likely to stand out and maintain their edge.
A SLOWING GROWTH ENVIRONMENT
Recent volatility has sparked a shift to quality, but the number of companies capable of withstanding significant macro uncertainty is limited. As the economy slows, growth becomes scarce, making companies with durable earnings growth more appealing. Historically, growth stocks outperform value stocks during periods of below-average GDP growth. With U.S. GDP projected at 1.3% in 2025 and potential Fed rate cuts later in the year, growth stocks could gain strength. Finding standout companies requires looking for opportunities with unique return drivers less affected by macroeconomic trends.
GROWTH BEATS VALUE IN LOW GDP GROWTH ENVIRONMENTS
UNLOCK NEW AI OPPORTUNITIES
AI is advancing at an unprecedented pace, ushering in the fourth era of computing. As we move beyond hardware, the focus shifts to applications driving the next stage of AI monetisation.
Generative AI: AI agents are emerging as a transformative force, likely to shape the next wave of innovation.
Transformational technologies: While early AI investments focused on infrastructure and computing power, the next phase will see applications revolutionising industries. Companies are leveraging AI to accelerate product development, enhance customer service, and unlock deeper insights from data.
DIVERSIFY WITH RESILIENT SECULAR TRENDS
Amid evolving tariff developments and related macroeconomic uncertainty, it’s crucial to focus on sectors less sensitive to these dynamics.
Consumer brands: While softening in price-sensitive consumer segments is pressuring aggregate demand, powerful consumer brands in key luxury segments continue to see strong pricing power and demand growth.
Technology enablers: Advances in technology-enabled manufacturing and automation continue to drive productivity, while electrification trends stand to benefit from new global policies. For instance, Chinese electric vehicles experiencing strong demand are immune to tariff impacts and a slowing U.S. economy.
Fintech platforms: Emerging markets are fueling demand for innovative, affordable, and accessible financial services that are less affected by tariff pressures than tangible goods.
Health care innovation: Advances in drug development, personalised treatments, and data-driven insights are unlocking significant opportunities in the health care sector.
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