However, investors must “drill into sectors” positioned to benefit from big themes, such as demographic trends, climate change, and shifts in global manufacturing, including the rerouting of global supply chains and the acceleration of nearshoring, according to asset managers.
“These themes will continue to attract investors who are willing to look beyond the dominant mega cap stocks,” Patrick McKeegan, portfolio manager at Franklin Templeton, said.
As an example, he highlighted manufacturing automation, which has recently gained momentum.
“This focus on automation is driving greater efficiency and flexibility in production and logistics systems,” he said.
Moreover, he emphasised the potential for enhanced efficiency and synergies through the scaling of logistics operations, often achieved via strategic acquisitions.
These advantages, particularly in logistics, frequently remain underappreciated, he said.
Similarly, ongoing growth drivers like automotive electrification and the expansion of data centres also tend to be overlooked.
McKeegan cited TE Connectivity, a provider of connectivity solutions for multiple sectors, as a potential beneficiary of these trends.
“Companies like TE Connectivity benefit from greater vehicle electrification and, increasingly, from helping connect Nvidia racks in data centres – a source of underappreciated growth potential,” he said.
Among its other solutions, TE designs next-generation technologies for data centre and AI connectivity.
Commenting on businesses benefiting from evolving technologies, the portfolio manager said that the evolution of generative AI, which has fuelled the rapid growth of “Magnificent Seven”, is unlocking opportunities through a range of new applications across a number of industries, driving companies such as AMD, a manufacturer of semiconductor devices used in computer processing.
Bright spots in Japan
According to French asset manager Amundi, investors wanting to broaden their exposure outside the US mega caps with stretched valuations can find bright spots in Japan, value in Europe, and select sectoral opportunities.
Amundi said that some of President-elect Donald Trump’s promises, if fully implemented, such as possible deregulation and corporate tax cuts, could bolster earnings prospects for equities in the US outside the mega-cap stocks.
However, the firm advised focusing on value investing and mid caps, along with pockets of value in Europe and emerging markets, while anticipating potential declines in growth and US mega-cap stocks.
In its 2025 Investment Outlook, Amundi identified opportunities within the financials, utilities, communication services, and consumer discretionary sectors.
“Across global sectors, we favour a balanced stance between early cyclicals and rate-sensitive defensives, with a preference for Financials, Communication Services and Utilities,” the report said.
“Financials, especially banks, look particularly cheap and should continue to benefit from returning capital to shareholders. We like Communication Services, mostly in the US, given strong earnings and reasonable valuations.”
Utilities, while also attractive, look even cheaper and should benefit from lower yields across regions.
“Additionally, utilities have some exposure to the AI theme in the US,” it said.
Looking ahead, Amundi favours a shift towards more cyclical exposure, with consumer discretionary in focus.
It also said that several sectors may benefit from trends independent of the economic cycle.
“AI will remain a long-term theme, but it’s important to approach investments in this area with caution due to the high valuations of the largest companies. The transition is expected to favour software,” it said.
“In the industrial sector, defence will likely benefit from geopolitical tensions, while manufacturing re-shoring will provide broader support.”
Private markets
Private markets have been deemed as another area offering attractive investment opportunities, given expectations of more interest rate cuts and decelerating economic growth.
According to Amundi, private debt offers “appealing income”, as companies are still benefiting from strong bargaining power when negotiating lending contracts.
McKeegan also believes that if anticipated rate cuts materialise, the merger and acquisition activity in private markets will surge and cyclical headwinds will be reduced and transformed into growth catalysts
Amundi, meanwhile, identified the infrastructure sector as one of the bright spots in private markets, given the sector’s strong growth outlook as well as risk and return diversification.
“We favour infrastructure investment due to its strong growth outlook and steady cash flow. Although volumes remain lower than a few years ago, the market is active,” the report said.
“Governments are supportive of private capital, as it is needed to complement public funding in building renewable energy infrastructure, meeting transport electrification targets and digitalising activities, as well as supply chains.”
