Fabrizio Quiriglietti, CEO and Head of Multi-Asset of Decalia, a Swiss asset consultancy company, has drawn up 10 forecasts that could influence financial markets and portfolio returns in the next twelve months. Some may be considered macro or general asset allocation themes, others may be considered provocative, many will not happen, and some may seem crazy but will be worth keeping in mind. In fact, surprises often tend to count for more than the correct prediction of the central macro scenario, because the greatest risks – or opportunities – are always the ones that no one sees coming and therefore no one is prepared for. Just think about the last few years… the Covid-19 pandemic in 2020, the surge in inflation in 2021, the Russian invasion of Ukraine in 2022, the collapse of Credit Suisse and no recession in 2023 ; or the strong returns in US stocks, gold and bitcoin that no one expected last year. So, the most surprising thing about 2025 would actually be… the lack of surprises.
Forget about credit in 2025! Either we remain in a Goldilocks scenario and equities should continue to be the fastest horse on the asset allocation carriage, or growth peters out and sovereign bonds/high-quality duration will likely outperform. Furthermore, given the historical tightness of credit spreads, the chances of credit doing relatively better than government bonds in a rate hike scenario related to an upward inflation surprise or any debt sustainability issue are extremely slim. Last, but not least, if inflation finally anchors itself, sovereign bonds will again provide some diversification benefits within a diversified portfolio. In other words, you’re not saying that credit yields will be negative, just that they are now pretty useless in a broad asset allocation. Within stocks, the Magnificent 7 will not be the leaders (in another good year) as market participation expands. One reason could be the spread of AI productivity gains to other sectors (or at least the adoption in the wider economy which seems more palpable/tangible), or simply a catch-up of other sectors, and particularly small and US mid-caps. To do this, all that is needed is for US long-term rates to fall below 4.5%, without any upside inflation surprises, thus allowing the Fed to proceed with gradual and cautious easing. Non-US stocks will outperform US stocks. It could be a corollary to the previous prediction if Mag7 suffers a major setback, but there could be other reasons. Let’s explore some of them. Trump’s policies could ultimately prove more counterproductive than expected for US markets, especially if they lead to higher rates for a longer period… and a weaker dollar. It could happen if concerns about the sustainability of US debt return, while the Fed loses its credibility. In this context, gold would likely take the lead in the rankings. Also note that Trump’s policies could also provoke reactions or alarm bells from major US trading partners such as Canada, Mexico, Europe or China, which could benefit and lead to an outperformance of these stock markets (at least in local currency). Is there perhaps any doubt about it? Just look at the Argentine stock markets last year… A major reform of the German debt brake will occur. The new German coalition government after February’s early elections will have “no other choice” at some point next year, as the German economy falls into a full-blown recession after Trump’s punitive tariffs, while the France will experience a debt sustainability problem that will impact the entire eurozone to some extent, thus making the ECB’s easing of monetary policy less effective. France’s 10-year yield will exceed Italy’s. Currently at 3.2%, it is already higher than that of Spain (3.1%), or Portugal (2.8%) and at the same level as Greece. However, I suspect that the situation in France could worsen due to the ongoing political turmoil and uncertainties that are further deteriorating this year, exacerbating the debt sustainability issue. And the problem here is much more serious than in other large economies for 3 main reasons: (1) the trajectory (France’s primary budget has never been balanced since François Mitterrand won the presidential election in 1981, i.e. for more than 40 consecutive years!); (2) the already high level of taxation in France (the tax/GDP ratio is close to 45% in France versus around 35% of the OECD average or less than 30% in the United States…) and (3) the investors Foreigners have taken over about 50% of France’s overall public debt, much higher than Italy’s roughly 25% or the United States’ 30%. At some point, the crisis will trigger a counter-reaction, such as Germany abandoning the debt brake (see above), effectively leading to a more common/integrated EU fiscal policy or, possibly, a more aggressive easing of ECB monetary policy (rate cut/resumption of QE). The Japanese government bond (JGB) curve will flatten as global growth slows through the year – especially outside the US -, wage growth in Japan will eventually disappoint, and the BoJ will raise rates at least 2 times. It will be in stark contrast to most other sovereign bond curves, which will tend to steepen as short-term rates fall more than long-term ones. The UK economy enters stagflation mode with a substantial slowdown in GDP growth, close to 0% compared to the +1.1% and 1.5% forecast in 2025 by the IMF and OECD respectively, persistent inflation above 3% and, in any case, higher than in any other G7 economy, as well as renewed concerns about debt sustainability, leading to overall downward pressure on Cable. As a result, the BoE will reduce its easing cycle. Oil Prices Fall Below $50 a Barrel as the Ukraine War Ends, Middle East Tensions Ease, Global Growth Slows, and Trump Policies Lead to Increased Shale Oil/Gas Production in the US . If this turns out to be right, it would likely solidify Goldilocks’ favorable backdrop and lead to strong performance in stocks and bonds, while providing a headwind for gold. Trump’s tariff policies lead to a real trade war resulting in significant currency movements. So far, exchange rate movements have been primarily driven by carry trade considerations and expectations about interest rate trajectories and endpoints. Now suppose that Trump’s tariff policies are not just tricks or threats of negotiation, but that he actually goes ahead with his initial intentions… The dollar could lose more strength both because the Fed becomes more aggressive and because other currencies depreciate significantly as their growth prospects become more negative, especially since a stronger dollar could help tame inflationary pressures in the United States, while weaker currencies of trading partners will help them remain competitive (i.e. offset the tariff increases to some extent). In this context, it will be worth keeping an eye on 2 currencies: the Hong Kong dollar (will the peg survive another year? Especially if the following prediction comes true) and the Swiss franc (the SNB may be forced to abandon or adapt again his desperate DonQuixotic quest against “bad” speculators). China falls into a Japanese deflation scenario, similar to that experienced by Japan in recent decades. Despite the continuous stimulus maneuvers of the Chinese authorities who seek to revive demand through monetary, budgetary or fiscal policies, structural headwinds (demographics, excess household savings, still large housing stocks, no longer major infrastructure needs, level of debt already high at a national level) and lack of trust/animality will make them useless and ineffective. Furthermore, Chinese policies are somewhat limited by the resilience of the US economy and its “exceptionalism”, which goes hand in hand with a relatively strong US dollar, as it continues to attract the majority of global investment flows. As a result, any potential cyclical recovery will quickly run up against a lower potential growth ceiling, with Chinese growth returning to a much weaker “new normal” path than previously (definitively below 5%). Not to mention that global fragmentation and, in particular, rising global trade tensions are not helping its economic prospects.
