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Risk Assets and Emerging Markets: Two Key Ideas from Amundi for 2025

Amundi: Activos de riesgo y mercados emergentes

Amundi summarizes its vision for 2025 with the phrase “Rays of light amid anomalies.” According to the asset manager, political and geopolitical developments are creating an increasingly fragmented world, but the global reordering is also generating new investment opportunities. Amundi projects more modest global growth, at 3.0% in 2025 and 2026, with the growth differential between emerging and developed markets expected to stabilize at 3.9% for emerging markets and 1.6% for developed economies.

Amundi’s base scenario predicts a slight slowdown in the U.S. economy, moving toward a soft landing, with modest growth of 1.9% and 2.0% in 2025 and 2026. This reflects a cooling labor market and slower consumption. A gradual recovery in Europe is expected, where growth potential should rise modestly, supported by lower inflation and monetary easing. Asia remains a key driver of global growth, with India leading the way and China focusing on economic stabilization and structural transformation.

Amundi anticipates that the confirmation of a disinflation process will encourage more accommodative monetary policies. By the end of 2025, interest rates are expected to reach 3.5% in the U.S., 2.25% in the Eurozone, and 3.5% in the U.K. In contrast, the Bank of Japan may implement two more rate hikes, while emerging market central banks will likely pursue gradual monetary policy easing.

Vincent Mortier, Group Chief Investment Officer at Amundi, highlighted the need to balance inflation risks while capitalizing on opportunities in risk assets. “Expanding equity exposure beyond large-cap U.S. stocks, seeking returns in both liquid and illiquid assets, and employing hedges in a fragmented world will be key in 2025.”

Monica Defend, Head of the Amundi Investment Institute, emphasized that in a world of anomalies, identifying opportunities created by political decisions and geopolitical shifts will be as important as protecting against the risks they bring.

De la Morena pointed out that in an environment characterized by economic and financial anomalies, strategic diversification and dynamic portfolio management are more crucial than ever. Investment opportunities arise both in resilient sectors and those leading global structural transformations, such as technology (especially artificial intelligence), energy transition, and demographic trends.

An Unconventional End of Cycle

Amundi’s outlook for the U.S. points to a scenario of soft landing, with a slight deceleration to slower growth rates of 1.9% and 2.0% in 2025 and 2026, as the labor market cools and consumption slows. The magnitude and timing of policy implementations will affect growth and inflation prospects, potentially influencing the Federal Reserve’s response and financing conditions. Amundi expects the new administration to prioritize tariff and immigration policies, followed by tax cuts and other budgetary measures.

Europe is preparing for a modest recovery toward potential growth, underpinned by lower inflation and monetary easing to support investments and channel savings into demand. The Eurozone’s largest economies will show mixed results, with fiscal policies becoming a significant differentiating factor. In the long term, Europe must address productivity restoration, potentially under pressure from a Trump administration to enhance cooperation on defense.

In emerging markets, Asia will remain a key driver of global growth in 2025. Relatively benign inflation prospects support more favorable policies in the region. Emerging Asia is already focusing on strategic objectives, demonstrating robust growth while strengthening regional ties and resilience. India is expected to be a major growth driver, while China will likely encourage economic stabilization and structural transformation.

Downside risks to Amundi’s central scenario could stem from a potential re-acceleration of inflation due to escalating trade tensions. Upside risks include reduced geopolitical tensions as major conflicts ease and accelerated structural reforms that translate into greater growth potential.

Amundi describes this unconventional end of cycle as a mix of economic and financial anomalies. Resilient economies, abundant macroeconomic liquidity, eased financial conditions, and disinflation coexist with elevated political uncertainty. At the same time, equity markets show high concentration, expensive valuations, and low volatility, contrasting with high volatility in fixed income markets.

Investment Ideas

In this environment, Amundi’s stance for 2025 is slightly risk-positive, balanced with assets resilient to inflation. Diversification on multiple fronts is essential, as potential policy changes can easily alter the investment framework. Current anomalies demand frequent reassessment and dynamic adjustments, with a particular focus on risk assets in the first half of the year. To identify the best opportunities, investors should explore sectors benefiting from long-term transformative themes, including demographic trends, geopolitical and industrial changes, the effects of climate change, technological innovation, and the cost of the energy transition.

Despite anticipated volatility, the low likelihood of recession, combined with greater central bank moderation, favors credit markets overall, given higher yields than in the past and strong credit fundamentals. Fixed income is likely to gain traction, with attractive income opportunities in government bonds, investment-grade credit, short-term high-yield bonds, leveraged loans, emerging market bonds, and private debt. European governments also provide diversification opportunities as inflation slows.

In equities, there is potential for the rally to extend beyond U.S. megacaps and adjusted valuations, given earnings and liquidity outlooks. Amundi favors a globally diversified approach, seeking pockets of value in U.S. equal-weighted indices, Japan, and Europe. Sector preferences include financials, utilities, communication services, and consumer discretionary. Value investing and mid-cap companies offer good hedges against potential declines in growth stocks and large-cap equities.

Amundi also sees opportunities in emerging market bonds, which are expected to benefit from a favorable macroeconomic backdrop and declining interest rates. In hard currencies, high-yield bonds are preferred over investment-grade ones, while in local currencies, the focus is on those offering attractive real yields. Within emerging Asia, India and Indonesia present the best long-term options and are more insulated from potential tariff increases.

Finally, challenges justify a more nuanced diversification strategy, seeking opportunities across volatility (hedge funds and absolute return strategies), liquidity (private markets), and macro/geopolitics (gold and inflation-linked bonds). Infrastructure and private debt combine robust growth prospects, inflation protection, and diversification benefits. In equities, dividend-paying stocks tend to be more resilient to inflation.

Transatlantic Gap in Banking Performance: Europe Is More Efficient, but the U.S. Has Market Confidence

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Brecha transatlántica en desempeño bancario

The global professional services firm Alvarez & Marsal (A&M) has presented the A&M35 Global Banking Pulse report. The report provides a comparative analysis of the performance of the 35 leading banks in North America and Europe, aiming to identify trends and insights shaping the future of the banking sector.

The report highlights that North American banks are outperforming their European counterparts in revenue generation, with net interest margins (NIM) of 1.8% compared to 1.2% for European banks. Additionally, net fee income is 60 basis points higher in North America. As a result, North American banks generate 50% more banking service revenue than their European counterparts.

The report reveals that North American banks significantly outperform European banks in revenue and business productivity, while European banks lead in cost-efficiency relative to income due to greater cost-cutting efforts following the credit crisis. On average, European banks have an efficiency ratio of 55%, better than the 62% of U.S. banks.

“Overall profitability is similar, with North American banks generating an average ROE of 11.9% compared to 11.3% for European banks. However, the valuation gap remains wide: North American banks trade at 1.4 times their book value, while European banks trade at 0.9 times. This difference is due to greater investor confidence in the sustainability of North American banks’ revenues, in contrast to the regulatory and economic challenges faced by European banks,” the report highlights.

The report also notes that European banks maintain stronger capital positions, with an average CET1 ratio of 14.5% compared to 13% in North America, reflecting stricter regulatory requirements and lower dividend distribution capacity among European banks. MREL levels for North American banks, at 30%, are 6% lower than their European counterparts.

The findings highlight fundamental differences in the structure and priorities of banks on both sides of the Atlantic. One such difference is the regulatory environment: North American banks operate under lighter capital models, offering more flexibility to generate returns, while European banks face stricter capital requirements and higher regulatory costs.

Another difference is market structure: higher credit and fee margins in North America contribute to greater revenues, while European banks struggle with compressed margins due to lower interest rates and less pricing power on fees.

The final difference the report emphasizes is efficiency initiatives: European banks have made significant progress in operational optimization, leveraging digital transformation to address inherited inefficiencies and reduce staff.

In light of these findings, Fernando de la Mora, Co-Head of A&M Financial Services Industry, remarked, “North American banks account for 64% of total market capitalization, while European banks represent only 36%, according to our report. This significant disparity in valuation is explained by structural differences in market power, scale, and regulatory frameworks. We anticipate an increase in merger and acquisition activity among large European banks as they seek to achieve greater scale.”

Concerns Over Risk Management and Hedge Fund Regulation Are Increasing

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Hedge funds are increasing spending on risk management as concerns about regulatory challenges grow, according to a global report by Beacon Platform Inc. The survey reveals that 99% of hedge fund managers surveyed in Beacon’s study—spanning the U.S., U.K., Germany, Switzerland, France, Italy, Sweden, Norway, and Asia, with collective assets of $901 billion—indicate their funds will increase spending on risk management in the next two years.

Specifically, 56% state that costs will rise by 20% or more, according to Beacon’s study. The open and cross-asset portfolio analytics and risk management platform also noted that most managers are concerned about their ability to address regulatory challenges: around 56% believe it will become more difficult over the next three years, while 39% expect pressure to decrease. Furthermore, C-level executives are nearly twice as likely to believe that regulatory challenges will intensify (73%) compared to their peers in Investment Analysis or Portfolio Management (38%).

A key finding is that transparency emerged as a significant issue in the study: 90% of respondents admit that transparency provided to clients and investors needs improvement, with 23% stating that it must improve drastically. Regulators are seen as the primary drivers of increased data transparency, but industry trade bodies and hedge funds themselves are also promoting greater transparency.

Another striking finding is that, in general, hedge funds are satisfied with their risk management systems but identified certain areas of concern: about 33% said their systems were only average in latency (the ability to perform complex calculations in an acceptable time), 30% rated them as only average in accuracy (the ability to mark-to-market and use industry-standard models for all products), and 5% rated them as poor.

Additionally, about 22% rated their systems as only average in transparency, and 6% as poor or very poor. More than 26% stated their systems were average in flexibility, with 2% calling them poor. Of those who rated their systems as poor, 82% plan to replace them in the next 12 months, while 65% will use additional systems to compensate for weaknesses.

Investments in systems have yielded results for funds that have made them: around 55% of those reporting improved risk visibility in their funds over the past two years attribute this to increased investment in technology, while 47% credit specialized third-party providers.

In light of these findings, Asset Tarabayev, Head of Product at Beacon Platform Inc., stated, “As regulatory challenges increase and clients demand greater transparency, our research shows that hedge funds are preparing to address these concerns. Spending is expected to grow across the sector as funds aim to leverage the advanced reporting capabilities of modern risk management and portfolio analytics systems to improve transparency for both investors and regulators. Funds leading in technology are already benefiting from these advanced technical capabilities, enhancing the transparency of analytical models, accelerating compliance times, and offering real-time views of risk limits and exposures.”

Allfunds Launches Allfunds Navigator, an AI Tool for Fund Distribution

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Allfunds Navigator, IA para distribución de fondos

Allfunds has unveiled Allfunds Navigator, a new functionality designed to enhance fund distribution using real-time data, artificial intelligence (AI), and machine learning. The tool aims to help users identify new opportunities, key market entry points, and areas where unallocated capital (dry powder) is ready to move.

According to the B2B WealthTech platform for the fund industry, the tool leverages a dataset encompassing more than €4.5 trillion in fund market assets. “This tool bridges the gap between raw data and clear strategic action, helping users stay ahead of market trends and maximize their impact,” the company explains.

The tool is tailored for asset managers’ sales teams, simplifying prospecting by identifying high-potential distributors and markets, uncovering untapped opportunities, and saving time and effort. It also serves analysts, offering deep, customizable insights to refine strategies and discover hidden opportunities.

The company highlights that the tool’s exceptional feature is its use of integrated AI for strategic insights. “It employs advanced, real AI to uncover hidden opportunities and deliver precise, data-driven analyses. Among its applications, users can leverage analyses of unallocated capital and money market assets to execute specific, informed forward-looking approaches,” the company notes.

Allfunds Navigator supports decision-making by eliminating guesswork and providing actionable intelligence that optimizes efforts and drives growth in a competitive, dynamic market. Designed for both analysts seeking in-depth analysis and sales teams looking for clear, actionable leads, its interface offers intuitive navigation and unparalleled flexibility.

Additionally, Allfunds has developed an integrated assistant, named ANA, which simplifies navigation. “Analysts, sales teams, and executives highlight that ANA completes in seconds tasks that traditionally took hours of data extraction, manipulation, and analysis, delivering equally accurate results,” the company states.

Following the launch, Andreas Pfunder, Director of Data Analytics at Allfunds, remarked, “Allfunds is more than a platform: we are a partner for growth. Our Allfunds Navigator tool exemplifies this commitment, offering our clients a solution that evolves with their needs and simplifies their challenges, helping them thrive in an increasingly complex and competitive market.”

Meanwhile, Juan de Palacios, Head of Strategy and Product at Allfunds, added, “We have always believed that actionable insights are the backbone of successful strategies. With Allfunds Navigator, we are not just offering another tool; we are providing the power of real-time intelligence and AI, enabling our clients to see what others do not and act faster than ever before.”

U.S. Growth, ‘Trump 2.0,’ and a More Flexible Fed Boost Optimism Among Fund Managers

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Optimismo de gestores con EE. UU. y Trump 2.0

The latest monthly fund manager survey conducted by BofA shows an extremely optimistic sentiment, reflected in a record allocation to U.S. equities, low cash exposure, and the highest level of global risk appetite in three years. According to the entity, this optimism is driven by U.S. growth associated with “Trump 2.0” and a flexible Federal Reserve regarding rate cuts.

Fund managers have improved their expectations for global growth and corporate earnings in the December edition of BofA’s survey. Specifically, six out of ten respondents believe there will be no global recession in the next 18 months. Additionally, 60% point to the likelihood of a soft landing, 33% still believe there will be no landing, and only 6% are considering a hard landing, the lowest in six months.

Part of this sentiment is clearly reflected in the cash allocation. “The level fell from 4.3% to 3.9% of assets under management (AUM), matching the lowest level since June 2021. Specifically, cash allocation decreased to a 14% net underweight from a 4% net overweight, the lowest level recorded, at least since April 2001. The 18-percentage-point drop in December represents the largest monthly decrease in cash allocation in the past 5 years. Previous low levels of cash allocation coincided with significant highs in risk assets (January-March 2002, February 2011),” the entity explains in its report.

It is also noteworthy that, in December, expectations for global growth improved to a 7% net of respondents expecting a stronger economy (compared to the 4% net that expected a weaker economy in November), being considered positive for the first time since April 2024. “December’s increase in global macroeconomic sentiment was led by greater optimism about U.S. growth, with the highest percentage of FMS investors expecting a stronger U.S. economy (6% net) since at least November 2021,” they point out from BofA. Additionally, they explain that the “Trump 2.0” political agenda (tax cuts, deregulation) drove earnings expectations, with 49% expecting an improvement in global earnings, a 22% increase from the previous month, reaching a three-year high. These expectations are also relevant in terms of what managers expect from monetary policy. In this regard, 80% expect further interest rate cuts in the next 12 months.

This optimism is not incompatible with managers identifying certain risks. In fact, 39% cite the trade war as the biggest downside risk for 2025, while 40% identify growth in China as the biggest upside risk. When asked which development would be seen as the most optimistic in 2025, the FMS respondents in December pointed to: the acceleration of growth in China (40%); productivity gains driven by AI (13%); a peace agreement between Russia and Ukraine (13%); and tax cuts in the U.S. (12%).

Asset Allocation

The survey reveals an interesting asset allocation fueled by this optimism. According to the survey, the weight of U.S. equities increased by 24% compared to the previous month, reaching a net 36% overweight—the highest level ever recorded.

The December jump was the largest observed since September 2023. “Investors are positioning their portfolios for an ‘inflationary boom in the U.S.’ next year, in anticipation of the pro-growth policies announced by the upcoming Trump administration,” notes BofA.

In relative terms, fund managers have the highest overweight in U.S. equities compared to emerging market equities since June 2012. Similarly, they hold the highest overweight in U.S. equities relative to Eurozone equities since June 2012—during the Eurozone debt crisis. Notably, the relative overweight of U.S. equities versus Eurozone equities is the fourth highest in the last 24 years.

Among the monthly changes made by fund managers, allocations highlight an increased weight in the U.S., the financial sector, and equities in general, while reducing allocations to emerging markets, the Eurozone, and cash.

Funds Society Wishes You a Happy 2025

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As 2025 approaches, it’s time to reflect on the year that is coming to an end. 2024 has been a year of new horizons for Funds Society: a year in which we entered new markets and countries (Brazil), launched new projects, and welcomed new team members. These months have been filled with challenges—but also with new aspirations—that we have overcome thanks to our dedicated team and the support of our readers.

We have continued taking confident steps to expand our reach and to keep offering you the best financial news and updates from every corner of the globe. That’s the key: a local presence combined with a global reach, allowing us to connect with you across many points on the map and build bridges between Spain and the Americas.

Bridges that are strengthened every day by an interconnected and committed team. That’s why we want you to meet all its members—the people who make it possible for Funds Society to keep evolving, enriching its history, and seeing its family grow. After almost 12 years of hard work, we are now present in seven countries, and we hope to keep adding more!

We want to thank you for continuing to choose us as your trusted source of information and for staying by our side on this journey, which is full of dedication, commitment, passion, and specialized journalism—but above all, of people.

Here we are to wish you, through this video, a very happy New Year filled with success, growth, and new opportunities.

Here’s to a 2025 full of great achievements together!

Why Trump’s Second Term Could Transform Asia

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The next term of Donald Trump will have global repercussions, and Asia will be no exception. It is clear that a victory for Kamala Harris would likely have meant continuity in Joe Biden’s policies; however, the Republican triumph will bring significant changes in the political, economic, financial, and regulatory arenas. “Profound and rapid changes are coming to Asia. In cross-border trade, currencies, risk appetite, and geopolitics, the influence of the new Washington administration will be far-reaching. In our view, the effects will be challenging and likely materialize sooner rather than later, possibly during the first half of 2025,” said John Woods, CIO Asia at Lombard Odier.

The firm points out that the relationship between the U.S. and China is fundamental to America’s broader engagement with Asia, with trade playing a key and bipartisan role. From the U.S. perspective, this relationship is ambivalent. According to Woods, on one hand, China is one of America’s most important trading partners; on the other, it raises concerns about trade imbalances, currency manipulation, and market distortions.

“The goal of a U.S. manufacturing revival drives the Trump administration’s promises to bring back jobs and ‘make America great again.’ This was a key aspect of his campaign, backed by tariff and quota proposals. With potential 60% tariffs on Chinese goods and 10% on the rest of the region, the risks are significant. However, we have seen this scenario before. In 2018, President Trump targeted approximately $360 billion in Chinese imports to address intellectual property concerns and reduce the trade deficit. While the direct impact of the tariffs was limited, the indirect effects significantly dampened global corporate confidence and investment,” Woods emphasized.

From a regional perspective, the secondary effects of U.S. fiscal and monetary policy under the new administration could be more extensive than the tariffs. “A focus on border control, tax cuts, and tariffs could increase inflationary pressures in the U.S. economy, leading to higher interest rates and bond yields,” Woods added. In fact, after the election, Lombard Odier raised its forecast for the Fed’s terminal rate to 4%. According to Woods, as higher U.S. rates trickle down to Asia, local economies—already impacted by weaker exports—will face a slower growth outlook.

Additionally, the dollar will play a crucial role in this transmission. “A strong dollar makes dollar-denominated imports more expensive, raising inflation and straining consumers and businesses in import-dependent countries. Nations with significant dollar-denominated debt will face higher repayment costs, affecting national budgets and growth investments,” Woods noted.

In this challenging macroeconomic context, Lombard Odier believes the market opportunity question will shift from “buy Asia” to “why Asia?” While there may be attractive opportunities in Asian equities, U.S. markets continue to draw investment flows, reflecting a dynamic economy and robust corporate performance, particularly among large tech firms.

“Our recent decision to increase portfolio exposure to U.S. equities reflects this American economic exceptionalism, which we anticipate will persist as the macroeconomic effects of Trump’s policies take hold. We note that consensus forecasts for earnings growth in the U.S. are on par with those for Asian equity markets. Investors face a choice between risk and opportunity in Asia versus the U.S., and historically, they have favored the latter. While a strong dollar is likely to boost earnings for Asian companies sensitive to U.S. demand, it could also increase the debt servicing burden for quasi-sovereign issuers and banks critical to the region,” Woods explained.

In this regard, Woods clarified that companies with dollar-denominated debt will likely face higher repayment costs, straining their financing and investment activities. He noted that during Trump’s first term, dollar-denominated credit spreads steadily widened as tariffs were imposed, although they remained stable immediately after his election in 2016.

“We believe that Asian economies will maintain reasonable growth in 2025, as the economic impact of tariffs is relatively moderate compared to recent stress episodes, such as the banking crisis or the global pandemic. China’s shift toward stimulus offers hope that the country can withstand the impact of new U.S. tariffs, which could anchor the region’s financial market performance. However, it is hard to imagine growing global demand for Asian risk assets until the president-elect’s likely transactional approach to tariffs results in more encouraging developments than his campaign promises,” Woods said.

Finally, Woods noted that the most profound impact of the Trump administration on Asia could be its deglobalizing effect on international relations. He reflected that the U.S. has increasingly focused on domestic interests, a trend that is likely to continue, potentially leaving room for a more assertive China to fill the vacuum.

“The mutual desire of the U.S. and China to decouple their economic relationship has evolved from a trade dispute into a more permanent shift. Asia largely orbits around China’s economy and the U.S.’s political influence, creating tensions historically managed with pragmatism and flexibility. However, this balance is eroding. As Asia’s geoeconomic dynamics change, local investment strategies must adapt to increasing tensions and points of conflict. The economic uncertainty stemming from potential trade agreement failures and sanctions exacerbates the situation,” Woods argued.

In one of his concluding remarks, Woods highlighted that while many Asian nations have maintained a non-aligned stance between the U.S. and China, China’s economic appeal—particularly through multiregional infrastructure developments like the Belt and Road Initiative—makes neutrality increasingly challenging. “This could lead to a realignment of positions, resulting in new spheres of influence,” concluded John Woods.

The Fed Cools Market Expectations for Significant Rate Cuts in 2025

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The Fed has cut rates for the third time since March 2020 by 25 basis points, as expected. International asset managers highlight that Powell acknowledged this decision was “more difficult” than previous meetings and emphasized it was “the right decision” given current conditions. This follows the recent FOMC communication emphasizing the merits of a “gradual” normalization of policy, supported by resilient economic fundamentals and growing political uncertainty with the arrival of President Trump.

“A significant modification in the statement’s language reinforces how measured this trajectory is. The incorporation of the ‘magnitude’ and ‘timing’ signals a slower rate-cutting path, with markets now pricing in a 90% chance of a pause in January, aligning with our assessment. Powell reinforced this message, noting that while policy remains restrictive, they are ‘significantly closer to neutrality,’ justifying a more cautious approach reflected in the reduction from four to two projected cuts in 2025,” says Salman Ahmed, Global Head of Macro and Strategic Asset Allocation at Fidelity International.

For Dongyue Zhang, Head of APAC Investment Specialists for Multi-Asset Investment Solutions at abrdn, the Fed took a hawkish tone. “These signals solidify our view that the Fed will pause in January as it slows the pace of easing. We expect a cut in March, depending on continued cooling of inflation. In our view, there’s a higher risk of fewer moves, especially if we see fireworks in the early days of the Trump administration. Judging by the slight shift in the Fed’s statement, we anticipate increased volatility due to policy changes under the Trump Administration in 2025,” Zhang notes.

This new stance represents another significant adjustment in the Fed’s approach, which just three months ago led to a 50-basis-point cut. “This shift aligns with the idea that persistent inflationary pressures would prevent the Fed from implementing the easing cycle markets had anticipated. Instead, we expect the Fed to recalibrate its policy, shifting from a restrictive stance to a less restrictive one. That’s exactly what’s happening, with Powell hinting that the central bank might end consecutive cuts, potentially pausing as soon as its next meeting in January: ‘We are at, or near, a point where it will be appropriate to slow the pace of further adjustments,’” says Jean Boivin, Head of the BlackRock Investment Institute.

In this regard, George Brown, Senior U.S. Economist at Schroders, expects an additional quarter-point cut in the March 2025 meeting, followed by a 50-basis-point hike in 2026. “It’s true that the central bank’s reaction function could be distorted if its independence were undermined by the Trump Administration. However, in our view, measures to ensure that independence are sufficient to mitigate this risk, as is the fear of market backlash,” Brown explains.

The Key Lies in the Dot Plot

Regarding the Summary of Economic Projections (SEP), Ahmed notes that the Fed appeared less aggressive in the dot plot: “The 2025 dot removed two cuts, exceeding market expectations of just one less cut. This adjustment is accompanied by stronger growth projections, higher inflation, and lower unemployment in 2025,” he states. He adds: “Importantly, the committee’s assessment of the long-term neutral rate was adjusted upward, with the median rising from 2.9% to 3%, and the central trend range increasing to 2.8%-3.6%.”

For Daniel Siluk, Head of Global Short Duration & Liquidity and Portfolio Manager at Janus Henderson, the SEP is markedly hawkish, with only two rate cuts projected for 2025, indicating heightened concern about the persistence or resurgence of inflation. “Inflation forecasts for 2025 have been revised upward to 2.5% (from 2.1%). Economic growth projections have been slightly raised for 2025, to 2.1% from 2.0%, but downgraded beyond the forecast horizon, with GDP growth for 2027 revised down to 1.9% from 2.0%. This suggests that more restrictive monetary policy has yet to make a significant dent in the economy,” notes Siluk, who observes that the market’s initial interpretation was hawkish, as evidenced by the flattening of the yield curve.

“Powell made it clear that a slower pace of cuts is the baseline case. He argued that inflation is still moving in the right direction, downplayed some of the stickiness in core inflation, and noted that the labor market is still cooling, but only gradually. We believe that if tariffs were the primary reason for the inflation uptick, we would have expected to see a softer growth forecast for 2025. Powell himself seems to have discounted tariffs, citing significant uncertainty regarding the scope, timing, and impact of tariff measures. We maintain our forecast for two more rate cuts next year, but risks have clearly shifted toward fewer (or no) cuts,” Bank of America analysts add.

David Page, Head of Macro Research at AXA IM, takes it a step further, predicting that the Fed will cut rates only once in March next year to 4.25%, depending on the magnitude of the new administration’s policies. “We are also more pessimistic about the long-term impact of these policies and expect them to weigh on growth through 2026, which we believe will prompt the Fed to resume easing in the second half of 2026. We forecast the FFR to end 2026 at 3.5%, now aligned with the Fed’s projections, but we do not believe the path will be as smooth as implied by the Fed’s mild cuts of 50, 50, and 25 basis points,” Page concludes.

SPVs vs. Structured Notes: Which is the better option?

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Managing modern portfolios demands flexible and diversified financial instruments that enable the maximization of returns while managing risks efficiently. Two widely used instruments in this context are structured notes and special purpose vehicles (SPVs). While both serve specific purposes, their applications vary depending on project needs, portfolio structure, and investor risk profiles, explained the specialized firm FlexFunds.

To choose the most suitable instrument, portfolio managers must deeply understand the characteristics, uses, and risks associated with each tool, ensuring they align with their clients’ objectives and needs. Below, we examine the specifics of each option.

Structured notes

Structured notes are customized financial instruments that combine fixed-income elements with derivatives, offering managers potential returns tied to underlying assets like stocks, indices, or commodities.

When to use a structured note:

Risk-adjusted return optimization
Structured notes enable tailored risk-return profiles. They are valuable for managing portfolios focused on capital preservation while capturing moderate returns.
Access to complex assets
Portfolios seeking exposure to hard-to-trade or replicate assets (e.g., custom indices or baskets of stocks) can use structured notes as an efficient solution.
Risk hedging
These instruments allow for hedging strategies, such as market downturn protection, often at a lower cost than directly trading derivatives.
Cash flow management
Structured notes offer flexibility in terms of maturity and coupon payments, facilitating integration into portfolios with specific liquidity needs.

Risks:

Counterparty risk: They rely on the issuer’s solvency, typically banks or financial institutions. If the issuer defaults, the investment could be lost.
Illiquidity: These notes are illiquid and challenging to sell before maturity.
Complexity and transparency: Their structure can be difficult to understand, and associated fees may lack transparency, potentially negatively impacting the investor.

SPVs (Special Purpose Vehicles)

An SPV is a separate legal entity created to manage specific assets or risks, isolating these operations from the parent company. These structures are commonly used in asset securitization and specific projects.

When to use an SPV:

Risk isolation: SPVs separate risks associated with specific assets from the parent company’s general balance sheet, protecting both investors and the parent company.
Financial flexibility: They enable capital raising through tailored instruments, such as bonds or structured investment vehicles.
Risk distribution: Funded by multiple investors, SPVs distribute risks among participants.
Cost efficiency: Depending on the jurisdiction, SPVs may be more cost-effective to establish compared to other alternatives.
Management of complex assets: For portfolios including illiquid or high-risk assets, SPVs simplify the repackaging, valuation, and sale of these assets.

Risks:

Operational complexity: Structuring and managing an SPV can be complicated and require technical expertise.
Transparency issues: Legal separation does not always fully eliminate reputational or financial risks to the parent company.
Market exposure: SPV performance depends on the assets it manages; if these assets underperform, investors may face losses.

Both instruments offer significant benefits, but the choice depends on portfolio objectives and strategies. Structured notes are suitable for managers seeking diversification with some level of protection, while SPVs are ideal for specific projects or asset structuring. The key is to carefully evaluate the risks, costs, and benefits of each option before making investment decisions. The table below summarizes the main differences between these instruments.

As a leader in creating investment vehicles through Irish SPVs, FlexFunds simplifies a process traditionally seen as complex and costly. Thanks to our expertise and innovative approach, we enable portfolio managers to design investment structures tailored to their strategies, achieving faster and more cost-efficient execution.

By combining the advantages of structured notes and SPVs, FlexFunds offers customized solutions that maximize efficiency in capital raising and distribution. These solutions are also cost efficient, as they can be issued in half the time and cost associated with conventional alternatives.

To explore how FlexFunds can enhance your investment strategy in international capital markets, don’t hesitate to contact our specialists at info@flexfunds.com

The Outlook for Financial Markets

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Perspectivas de mercados financieros — Image generated with AI

The Republican party’s sweep of the US election is likely to boost equity markets, particularly those in the US, if the pattern of the first Trump administration is any guide. The risks are that either growth accelerates by too much and the US economy overheats, or that large tax cuts prompt a negative reaction from the bond market. We will have to wait until there is more clarity, not only on any policy proposals, but also on what can actually be implemented.

Aside from political developments, developed market central banks are cutting policy rates. This should boost both equities – as shorter-term financing costs fall – and fixed income, as the policy rate component of bond yields declines. Of course, anticipating the reaction of markets is not as simple as that because the other, arguably more important, factor driving asset prices is economic growth.

Investors should initially be circumspect in anticipating positive equity returns during a rate-cutting cycle given that four out of the last five such cycles in the US coincided with a recession. Not surprisingly, the onset of a recession led to negative returns in equities alongside gains for government bonds.

The critical consideration in anticipating returns for next year is whether 2025 will be exceptional in not having a recession.

A preference for US equities

The consensus view has been that the US will indeed see a soft landing – that growth will slow, but remain positive as core inflation moves back towards the US Federal Reserve’s 2% target. Europe has already had a slowdown, but we believe 2025 should see a modest rebound. Economic growth would be supportive of equity markets and earnings, leading to price gains in the year ahead.

Our regional preference remains the US. Enthusiasm for artificial intelligence was the primary driver of rising earnings in 2024; the bulk of earnings derived from the types of stocks making up the tech-heavy NASDAQ 100 index, while the rest of the market saw barely positive growth.

In 2025, the distribution is expected to be more balanced, even if NASDAQ earnings growth is still superior (see Exhibit 1).

European equities should also see market gains, but once again lag most other major markets. The region remains hindered by the overhang of geopolitics and structural challenges facing its largest economy, Germany.

Consumer demand in Europe will need to rebound much more strongly than we anticipate for consumer-linked sectors to thrive. Exporters will benefit from robust US growth, though tariffs remain a worry. China is unlikely to pull in European products the way it has in the past as growth in China slows.

The potential for superior returns in China will depend primarily on actions from the central authorities. China remains distinct in its dependence on government policy to drive economic growth and hence corporate profits.

While we anticipate more stimulus from Beijing, it does not look likely there will be a major change in economic policy; Beijing will probably continue to focus on investment in new, developing industries rather than nurturing household consumption or bailing out property developers.

We question whether these privileged sectors will be able to generate growth for the whole economy at the rate the authorities would like. Without a stronger rebound in the property market, consumer sentiment is likely to remain depressed. Looking to exports to make up the slack may also prove insufficient due to rising global protectionism.

Chinese earnings should nonetheless rise, at more than 10% year-on-year if consensus estimates are correct, though this is not that much more than Europe at 9%. Valuations are low relative to history, but there may now be a permanent discount to multiples versus the past, meaning price-earnings ratios will not necessarily revert to the mean.

Fixed income – Opportunities and concerns

The risk to market expectations for short-term rates in the US comes from the potentially inflationary impact of the new Trump administration’s policies (tighter immigration, tariffs, tax cuts). At this point, however, one can only speculate on what will actually be implemented.

Longer-term Treasury yields could rise to reflect the uncertainty about the outlook for inflation, to say nothing of the US budget deficit. An extension or expansion of tax cuts would only lead to a further deterioration in the fiscal outlook.

As always, however, it is unclear if and when the market will decide to fully price in these risks. We would anticipate ongoing support for gold prices as investors look for alternative safe haven assets.

Investment-grade credit should provide superior returns relative to government bonds as spreads remain contained alongside steady economic growth.

While spreads are narrow – both in the US and in the eurozone, and both for investment-grade and high-yield – they are relatively better for eurozone investment-grade credit, and we see this asset class as offering the best risk-adjusted returns.

Daniel Morris, Chief Market Strategist at BNP Paribas AM