A year of continued challenges and redefining limits. We will focus on building a portfolio that can adapt to various scenarios.



Key Economic Themes for 2025



Looking ahead to 2025, we expect the U.S. economy to achieve a soft landing. We assume that the new government will moderate its more aggressive stance on tariffs and immigration. Based on these dynamics, here are some of our key economic views for 2025:



U.S. Growth vs. Policy Trade-offs



The U.S. economy is expected to grow at a trend-like rate of 2.0% in 2025, reflecting the lagged effects of the Fed's tightening monetary policy. The policies of the Trump administration require careful balancing. Tax reform and deregulation may stimulate economic growth, especially in domestic and cyclical sectors. However, tariffs and immigration restrictions may trigger stagflationary shocks, potentially prompting the Fed to consider rate hikes during economic weakness.



Global Headwinds and Policy Divergence



Outside the United States, growth is likely to remain under pressure. Trade policy uncertainty and tariffs will severely impact Europe. China will face headwinds from U.S. tariffs, a weak real estate market, and deflationary pressures. Japan, on the other hand, is an exception, benefiting from a wage-price spiral, with inflation expectations anchored close to 2%.



Market Sentiment and Valuation



Elevated stock valuations make the U.S. market vulnerable to negative surprises, while a further strengthening of the dollar will challenge emerging markets. Persistent U.S. Treasury yields above 4.5% could challenge the equity market, weakening the yield advantage equities have enjoyed over bonds since 2002.



Key Investment Themes for 2025



As we move into 2025, the interplay between the evolving policy environment and changing market conditions requires us to exercise prudent asset allocation. Based on the macroeconomic backdrop—resilient U.S. economic growth, potential disruptions from trade and immigration policy, emerging opportunities from AI-driven productivity gains, and growth in private markets—we have adopted three strategic themes:



Policy Adjustments in U.S. Growth



The U.S. economy remains resilient as we enter 2025, but the road ahead will be shaped by evolving policy dynamics.





Asset Class Impacts:


  • Equity

    We focus on U.S. small-cap stocks, where post-election dynamics, improving earnings, and attractive valuations may create compelling opportunities. Meanwhile, growth-oriented fund managers are looking at high-growth cyclical stocks like software, while value-oriented fund managers are finding merger potential in the financial and healthcare sectors. Core fund managers are balancing cyclical exposure and managing risks in interest-sensitive industries.
    Additionally, we expect U.S. foreign policy actions to lead to increased market volatility, creating opportunities for active managers to find high-quality companies temporarily affected by headline risks.

  • Fixed Income

    We see opportunities in the steepening yield curve for short-term bonds, as short-term rates are expected to decline faster than long-term yields. Due to spread tightening, the credit market may lack upside, especially in U.S. high-yield and investment-grade bonds. This creates opportunities to expand fixed-income exposure into more attractive risk/return trade-off areas, such as emerging market dollar bonds and private credit.

  • Currency

    The U.S. is expected to face upward pressure due to tariffs, a strong U.S. economy, and the Federal Reserve being less dovish than other central banks. However, its valuation remains high, and emerging market currencies are already under pressure. In light of this, we will keep our currency bets limited in 2025 while closely monitoring potential opportunities and risks throughout the year.



Private Markets: New Engines of Growth



Private markets continue to play an increasingly important role in the evolving landscape of capital flows, as the significance of public markets gradually diminishes with fewer IPOs (initial public offerings) and late-stage listings.




Market Impact:


  • Private Equity

    We focus on private equity opportunities in the European mid-market and continue to promote growth in Japan and the Gulf countries. Managers with industry-specific expertise outperform generalists, and we believe that the portfolio can benefit from this trend.

  • AI and Technology

    We believe that AI-driven private market projects focusing on scalable innovative technologies across various sectors will continue to be key drivers of long-term growth. We are actively seeking to invest in AI-driven companies that are likely to enhance productivity and reshape industries.

  • Private Credit

    We view private credit as a resilient asset class, especially in the current high-interest-rate environment. Asset-based loans and European direct lending offer attractive relative value, and we are expanding our fixed-income exposure into these areas to capture higher yields and better diversification.

  • Infrastructure

    We are optimistic about infrastructure as a long-term growth anchor and a hedge against inflation. This asset class has demonstrated strong resilience in recent market volatility and benefits from long-term trends such as energy transition, renewable energy, and digitalization. Demand for sustainable and digital infrastructure continues to grow, driving significant capital inflows. Additionally, a blended model combining private and public market exposure is unlocking new growth potential.

  • Venture Capital

    We see tremendous opportunities in AI-driven venture capital (VC), especially in early-stage companies that have the potential to reshape industries. With the VC market stabilizing, we focus on companies with strong fundamentals, innovative track records, and effective scalability.





Expansion of Market Leadership



Despite large AI stocks driving market returns over the past few years, leadership is shifting to companies that use AI to create real efficiencies. The new U.S. government's focus on reducing regulation and tariff-based policies may provide additional impetus for smaller, domestically oriented companies, which are less affected by disruptions in international trade compared to large stocks with significant overseas revenues, like Apple. We see this shift reducing market concentration and opening doors for alpha opportunities.


Market Impact:


  • Equity

    Active equity fund managers have recently faced challenges from a significant increase in market concentration. Our research indicates that even if these trends stabilize—potentially driven by policy shifts or changes in views on large-cap earnings growth and valuation—it could assist the performance of active fund managers. We and our active fund managers focus on industries where AI adoption is accelerating, such as industrials, healthcare, and consumer goods. We believe companies that leverage AI to improve productivity are well-positioned to gain lasting competitive advantages and generate strong returns. Capable active fund managers can seek out these companies, especially in less covered areas of the market.

  • Real Assets

    We see investment opportunities in real estate and infrastructure, particularly in areas benefiting from long-term stable interest rates and favorable relative valuations compared to other growth assets. AI applications in real estate, such as data centers and healthcare facilities, are becoming key growth areas. Additionally, infrastructure investments in energy utilities and pipeline exposure are accelerating due to the U.S. government's expansion of LNG (liquefied natural gas) production.