European asset manager Amundi, one of the world's largest investment houses, has just released its 2025 Investment Outlook, highlighting that although geopolitics and policy shifts are creating a more fragmented world, new opportunities are emerging in the global reordering.

The global economic outlook for 2025 still looks favorable for risk assets, but policy and geopolitical challenges are entrenched, according to Amundi, an organization with $2.440 trillion in assets under management (as of Sept 30, 2024)

Anomalies, such as market concentration and excessive debt alongside the macro outlook, require greater and more nuanced portfolio diversification and dynamic allocation adjustments, the firm, which is headquartered in France, said in a report.

Amundi expects global growth to stabilize at 3 per cent in 2025 and 2026 as well as the growth differential between developed and emerging economies, with emerging markets growing at 3.9 per cent and developed markets at 1.6 per cent over the next two years.

Like its peers, Amundi is grappling with how the election of Donald Trump as President, the Republican gains in Congress, and issues such as East-West trade tensions and geopolitical uncertainties affect the asset allocation chessboard.

Mild deceleration
Amundi also expects the US economy to mildly decelerate toward a soft landing, with slower growth (+1.9 per cent and +2 per cent in 2025 and 2026) as the labor market cools and consumption slows. It thinks that the US president-elect Donald Trump may prioritize tariff and immigration policies, followed by tax cuts and other fiscal changes. 

Amundi thinks that Europe’s recovery toward potential growth will be modest and progressive. “The Trump administration could push Europe to strengthen defense cooperation and potentially advance proposals to enhance productivity growth,” Amundi said.

The group predicts that Asia will remain a major driver of growth, despite China’s slowdown, in 2025. The relatively benign inflationary outlook favors more supportive policies in the region. “Emerging Asia is already shifting toward more strategic goals, posts robust growth, and has enhanced regional ties and resilience. India will be a key growth engine and China should likely encourage economic stabilization and structural transformation,” the firm added.

The main downside risks to Amundi’s central scenario would stem from a reacceleration of inflation due to escalating trade tensions. Upside risks relate to a reduced geopolitical risk as main conflicts end and an acceleration in structural reforms result in higher growth potential.

“Confirmation that disinflation is on track should support more dovish monetary policies. Central banks in the US and Europe should continue to cut rates," Amundi said in a note. By the end of 2025, Amundi anticipates that terminal interest rates will reach 3.5 per cent in the US, 2.25 per cent in the eurozone, and 3.5 per cent in the UK. “By contrast, the Bank of Japan is anticipated to implement two more hikes. Emerging markets' central banks intend to deploy more independent policies, easing gradually,” Amundi said. 

“Seizing opportunities in risk assets, while balancing inflation risks will be key in 2025. Investors should broaden equity exposure beyond US mega-cap stocks, look for income across liquid and illiquid assets, and implement hedges in a more fragmented world,” Vincent Mortier, group chief investment officer of Amundi, said,

“In a world of anomalies, there are plenty of bright spots. Identifying the opportunities created by policy choices and geopolitical shifts will be as important as safeguarding against the risks they entail,” Monica Defend, head of Amundi Investment Institute, said.         

Investment opportunities
In this environment, Amundi’s stance for 2025 is mildly pro-risk, balanced with inflation-resilient assets. Diversification across multiple fronts is essential as potential policy shifts can easily transform the reference framework. 

Despite expected volatility, the low probability of recession combined with more dovish central banks are supportive of credit markets overall, given higher yields than in the past and sound credit fundamentals, the firm said. Government bonds, investment grade and short maturity high yield credit, leveraged loans, emerging market bonds and private debt present attractive income opportunities. 

On equities, Amundi believes that there is potential for a broadening of the rally beyond the US mega caps and stretched valuations, given earnings and liquidity prospects. It favors a globally diversified approach and seeks pockets of value in US equal-weighted indices, Japan and value in Europe. In sectors, Amundi favors financials, utilities, communication services, and consumer discretionary. “Value investing and mid-caps are good hedges against possible declines in growth and mega cap stocks,” the firm said.

Amundi also believes that emerging markets should outperform developed markets in 2025. Notwithstanding the potential new course in the US, emerging market bonds should benefit from a supportive macro backdrop and interest rates trending lower. Emerging Asia, India and Indonesia also offer the best long-term picks and are more insulated from tariffs, Amundi said.

Infrastructure and private debt combine a strong growth outlook, inflation protection, and diversification benefits. In equities, dividend stocks tend to be more resilient to inflation, the firm concluded.