Economy

Investment tips on shares and raw materials for 2025

As I wrote to you a couple of weeks ago, let’s try to give some advice at the beginning of the year which deliberately does not concern the role core of the portfolio (where the suggestions of asset allocation are found in abundance), but ideas that we will define as “satellite”, more specific, perhaps less consensus, which can help to find something alternative, to stimulate the intellect of our readers.

So what do we like about the markets for 2025 just starting? What do we believe “value” contains? Since this is the perspective we follow most when analyzing the markets. Today we complete the work with two side ideas equity and commodities.

  • Geographical/sectoral basket type VALUE: we believe that some countries and product sectors offer value as market valuations are low compared to history in absolute terms and even more so are relative ones, very attractive compared to those of the global stock market. We are aware of the fact that value has not guided the markets for several years, but we think that from an “additional” perspective on a classic portfolio, the 4 themes identified (China Equity, Latin America Equity, Korea Equity and EU Food & Beverage Equity ) can bring diversification and added value.

China is heavily discounted compared to its own standard valuations for various reasons (lower growth, real estate bubble, sectors disrupted due to government interventions, declining international investment flows, “isolation” dictated by American policy towards the country). Many factors appear to be incorporated into stock and index prices. It is possible to expose yourself to the country through dedicated funds (Fidelity, Pictet, Schroder, Comgest to name some houses equipped in the area) or through ETFs (we really like the Xtrackers Harvest Ftse China product which takes the 50 largest Chinese companies large among the dual-listed ones and chooses to buy the “A”s locally or the “Hs” on the Hong Kong exchange depending on the premium/discount level at which they trade). ETF listed on the German stock exchange, harmonized.

Latin America stocks see a dominant weight (62%) of Brazil, followed by Mexico (26%) and little else. Brazil itself presents a relationship between the expected growth in profits for 2025 (approximately 15%) and market valuation (8 times profits) which has practically no equals on a global level as the Kepler Chevreux graph shows us well ” colored”. The current high interest rate situation does not help trend politician worries investors. Value play pure. Amundi Msci Latin America ETF listed in Milan very suitable.

Korea (South) is a similar story to Brazil on the valuation side (P/E between 7 and 8, almost at an all-time low as you can see from the Jefferies graph), but different on the product sectors in which investments are made. The Asian country is advanced at a technological level (sector weighs more than 40%) with stocks such as Samsung or Hynix or LG; followed by financial and then automotive stocks such as Kia Motors or Hyundai. The common factor is the decline in market valuations due to two main reasons: country’s difficulty in implementing reforms side chaebol (the large Korean conglomerates that operate in many sectors are controlled by a family and do not shine on the efficiency and capacity side shareholder friendly policy) and the decline in the average profitability of companies. The ongoing political crisis has also led to outflows from foreign investors in recent months. Various ETFs available for exposure to the country; we prefer Amundi’s as it is listed in Italy. On the fund side there is a product from JPM AM.

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Coming to the last piece of our basket, we talk to you about the European Food & Beverage sector (60% the first, 40% the second within the index) which has fallen significantly in the last four years and has very low valuations as you can see below.

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Reasons for the decline? Market interest only for themes growth at high beta, the sector’s difficulty in managing the increase in raw material costs that occurred post Covid and the Ukrainian war, for the beverage campaign “against” alcohol in progress and American duties, for both sectors the theme of change packaging from a sustainable perspective.

Multiple challenges therefore, but valuations that have never been so attractive with stocks such as Nestlé, Diageo, Campari or Pernod Ricard which have halved from the highs reached between 2021 and 2022. Ishares ETF listed in Germany and harmonized ready for use.

  • Basket of raw materials: predicting the price trend of raw materials is more complicated than ever. In recent years I have therefore adopted a method that involves finding commodities that have lost a lot of value in recent years and which graphically have shown that they have found a base (no guarantee that the price cannot fall further unfortunately, but it is a “clue” ) and aim for their recovery over the next 12 months.

For 2025, wheat and palladium are in this situation having made highs in spring 2022, like many other raw materials, only to then lose almost 70% of their value.

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On wheat I have no fundamental elements to add and I am certainly not an expert on crops or the influence of climate change on yields, while on palladium we can instead underline that the delta between its price and that of gold has never been so high in history . It is true that the industrial use of palladium represents 80% of demand and is linked to the traditional non-electric automotive sector (which is not in favour), but it is also true that palladium is a precious metal on which one can investing and a potential substitute for gold in jewelry. This enormous delta could make investors reflect given that in 2020 – 2021 palladium had reached a value of 3000 USD per ounce against gold which was at 2000, while today we are at 1000 USD against 2750 for gold.