After a decisive result in the US election, the outlook for risky assets seems positive in 2025 with a soft landing in sight for the US and world economies, despite the potential for volatility ahead, according to Allianz Global Investors.

Stefan Hofrichter, head of global economics and strategy at Allianz Global Investors (AllianzGI), believes that it is time to reconsider asset allocation – by moving along the risk curve or adding illiquid assets such as private debt and infrastructure.

Hofrichter thinks there will be a soft landing for the US economy, in which inflation slows and recession is avoided. This means holding on to risky assets, most obviously US equities which, in his view, remain attractive despite high valuations. He thinks sovereign bond yields are starting to look attractive again after weakness in the autumn. “In a market environment likely to be more dynamic than usual in the months ahead, an active approach to managing portfolios will be vital,” he said in a note.

Outside the US, Virginie Maisonneuve global CIO equity at AllianzGI, highlighted how China recently announced a new $1.4 trillion stimulus package designed to help restructure local government debt and support the economy’s move away from reliance on the property sector. The size of the stimulus disappointed some observers. However, the move is certainly a positive step, with more action anticipated from the central government as the direction of the new administration in Washington becomes clearer. “Recent data in China points to a stabilization of the macroeconomic environment, and even a rebound in the case of the financial sector,” she said.

In India, the situation is starkly different as the economy is beginning to capitalize on its demographic dividend – a young and increasingly skilled population – just as China is starting to find its demographics a burden. “India currently boasts several advantages which will enhance productivity across sectors in the coming years,” she continued.

“Yet, it is the prospect of significant increases in tariffs and other barriers to trade that has made the post-election headlines,” she added. It is unclear to what extent US president Donald Trump’s promises of blanket 10 per cent or 20 per cent tariffs on all imports – and 60 per cent on those from China – will become a reality. However, such measures could be inflationary in the US and impact growth in Europe and China. Maisonneuve expects the global megatrends to continue into 2025 and beyond. “Energy transition and sustainability factors are now embedded in many market participants’ approaches, and any potential rolling back of “green” policies in the US may not have as much negative impact as some fear, given the momentum of mitigation and adaptation underway,” she said.

Global supply chain redesign is another important theme given the prospects of punitive tariffs, as well as the way in which new technologies and geopolitical issues are driving some companies to onshore or reshore production.

She expects that elevated volatility will continue into 2025. While many investors favor a “barbell” approach – with portfolios heavily weighted towards low risk at one end, and high risk at the other – she favors breaking the barbell by rethinking equity portfolio construction as a pyramid. “The base of the pyramid – ie, the largest segment of any portfolio – should take a multi-factor approach to absorb volatility. Building on this, a second level should look for real quality across styles: growth, value, and dividend,” Maisonneuve said. Finally, at the top of the pyramid, she finds stocks reflecting her high conviction ideas such as those tracking megatrends – artificial intelligence and energy transition, for instance – and regional plays such as investments in China and India.

Fixed income
Michael Krautzberger, global CIO fixed income, said that 2024 was another rollercoaster ride for sovereign fixed income investors. “It has been a story of diverging global growth, with the relative outperformance of the US economy versus the rest of the world remaining the key driver of global bond and currency markets. Over the near term, the election of Donald Trump as the next US president has reinforced this narrative given expectations about future US fiscal and trade policy,” he said. Nonetheless, inflation prospects have improved globally, with core inflation rates inching back toward central banks’ targets in the major markets. “This has reinforced expectations of an interest rate-cutting cycle across the G10 markets, providing an anchor for sovereign bond markets through the course of the year,” he continued.

Krautzberger believes that investors could consider moving along the risk spectrum by reallocating assets that are held in cash or low-risk money market funds to “medium risk” opportunities in fixed income or private markets – counterbalancing high-risk exposure areas.

Illiquid assets could also be an increasingly important tool for diversification as growth in private debt and infrastructure is accelerated by new rules in Europe to increase retail investor inflows.

Private markets
Deborah Zurkow, global head of investments private markets, believes that private debt and infrastructure will continue to provide attractive opportunities. Following regulatory changes, private markets are now more investible for more clients, which comes with more responsibility to enable these new cohorts of investors to make informed decisions. With more client groups, more projects that need financing, and fewer players in private markets, she expects to see many new projects and companies that need financing. By their side will be like-minded partners with proven, long-standing expertise and experience.

Zurkow thinks that investing in the future means investing in infrastructure. From digitization to energy transition in addition to upgrading existing infrastructure, huge investments are needed to accelerate progress and growth. She expects more opportunities in 2025, particularly in infrastructure debt.

Wrapping up, Gregor MA Hirt, global CIO multi asset, said an agile approach to asset allocation will be crucial in 2025. “A well-diversified portfolio is an important starting point, while actively managing volatility will be key to building dynamic protection,” he said. He thinks a likely disruptive environment – and worrying levels of equity market concentration in places – call for a focus on bottom-up security selection and active investment management.