Despite global economic challenges, including geopolitical tensions and the ripple effects of Donald Trump’s policy agenda, economic momentum and resilient labour markets in Australia and the US provide a cautiously optimistic outlook for the year ahead.
“Geopolitical tensions, the aftershocks of a populist wave in Western elections, and the unpredictable policies of the new US administration of Donald Trump are all adding to a heightened sense of economic uncertainty,” Lee wrote in an analysis piece published on InvestorDaily.
“Yet we are approaching 2025 with cautious optimism, expecting economic momentum to carry through from 2024.”
The resilience of labour markets and gradual progress towards inflation targets suggest a potential easing of financial conditions, he said.
But while low unemployment rates and these easing conditions could create opportunities, Lee warns of heightened volatility.
“Investors would be wise to brace for unexpected events and prioritise a disciplined, long-term approach to portfolio construction,” he added.
For Australian investors, specific sectors show promise.
“Amid this uncertainty, we view the Australian small-cap market positively. After a protracted period of underperformance relative to their large-cap counterparts, small caps appear to be poised for a resurgence,” Lee noted.
He also highlighted opportunities for Australian companies with strong US dollar revenue streams, such as Aristocrat Leisure and Zip Co, which may benefit from a strengthening US dollar driven by fiscal spending.
Reflecting on 2024, resilience in the global economy and consumer spending defied expectations, despite challenges like slowing Chinese growth and sticky inflation.
“The artificial intelligence (AI) and technology sectors provided strong tailwinds,” Lee said.
“The ASX200 technology subsector delivered impressive returns, outperforming the broader index significantly. While the long-term prospects for AI remain promising, it is important to acknowledge that current valuations may be driven more by hype than concrete profitability,” he cautioned.
As 2025 unfolds, Lee emphasised the importance of a disciplined investment approach.
“We believe that it remains important for investors to embrace a disciplined approach and focus on quality investments with strong fundamentals and a margin of safety to withstand volatility. Investors will need to stay informed and closely monitor geopolitical developments, policy changes, and economic indicators while exploring opportunities in potentially undervalued segments of the market, such as small caps,” he said.
To read more from Lee, click here.
