IO Summary

Our market view

During 2024, asset markets benefited from sustained US economic activity, falling inflation and key interest rate cuts, as well as strong earnings ‒ led by US growth companies and with Artificial Intelligence (AI) as a structural force that provided extra strength. Outside the US, the level of economic activity was lower, but stock markets and fixed income markets also performed well. Our forecast for 2025 is that the global economy will continue to grow at roughly the same pace and that lower key interest rates will boost the more cyclical part of the global economy. This will enable a broader distribution of profits between regions and sectors as well as between large and small companies. The risk picture is messy, with increasing protectionism via Donald Trump’s introduction of – or plans for – sharply higher tariffs, lagging growth in Europe and clear structural problems in the Chinese economy, etc. In spite of this, we expect positive returns, although we do not anticipate any additional potential via the valuation parameter since it currently shows higher P/E ratios than historical averages, though with wide gaps, and credit spreads are compressed.

Our portfolio 

We will continue to maintain a well-diversified portfolio with a moderate overweight in equities and an underweight in fixed income investments and our liquid alternative asset class, consisting of hedge funds. All asset classes delivered strong returns during 2024. In 2025, we still expect positive returns from all asset classes, but the figures will be lower and the differences between asset classes will be smaller. We still have an overweight in US equities and are highlighting Swedish equities as another attractive position. Among fixed income investments, we have long durations and an overweight in investment grade bonds, while toning down high yield bonds. Our hedge fund portfolio reflects low covariance with equities and corporate bonds. As always, illiquid alternative investments are an attractive asset class that should be combined with the liquid assets above.

Stock market performance

Last year was completely dominated by the US stock market – led by large tech companies – but 2025 has started with dominance by the Old World. Europe is at the forefront of the upturn in equities, while other regions have lagged. This is partly a reaction to last year’s developments, where Europe fell behind due to lower relative valuations but also showed greater confidence that economic growth would improve, benefiting traditional European industries. Less widely noticed is that financials have emerged as a winning sector in both the US and Europe, along with industrials. The tech sector, on the other hand, has had a tough start to 2025 since the new DeepSeek model was launched, putting pressure on semiconductor stocks. The report season has started strongly in the US, with upside surprises for both sales and earnings, while things are a bit slower in Europe. But we expect earnings growth rates in different regions to converge this year as economic conditions improve. Small caps have not kept pace with large caps in recent years, but improved economic activity and lower interest rates/bond yields will benefit small caps, as will their low valuations.

 Argentina and water – Two investment trends on the rise

Turning to our theme articles in the February 2025 issue of Investment Outlook, we report on the transformation of the Argentine economy and its effects under the heading “Argentina – an economy in transition”. Our other theme article, “Water – new investment cycle is here”, is about existing global water requirements and the huge investments that need to be made, as well as the financial investment opportunities this will generate.

Global equities

• DeepSeek is shaking up semiconductor manufacturers
• Q4 2024 reports start on a positive note
• US small cap executives are optimistic about the future
• Earnings growth and market performance will be more balanced this year

Nordic equities

• Economic conditions remain weak, but with hopes of a turnaround soon
• Businesses are ready for global change
• Falling Danish share prices are lowering Nordic P/E ratios
• Deepseek is causing AI turbulence in the Nordics, too

Fixed income investments

• Fixed income volatility anticipated in 2025
• We expect long-term bond yields to fluctuate within broad ranges
• Credit spreads are again at record low levels
• Emerging markets show promise, but Trump is a source of uncertainty