Outlook Investment 1Q25 Strategy - Volatility High, Return Lows

1Q25 InnovestX Strategy – Volatility high, returns low

Soft landing, slowdown and headwinds. The 2025 global economy shows varied signals: US growth exceeds expectations but is moderating, the EU is improving but lags the US, China is steady at 4.8% GDP, and Thailand is accelerating to 3.0%. Major broad tariffs are a risk, threatening growth and sparking inflation.

After the rate cut, growth is what matters. Equity markets historically rally following the first rate cut in non-recessionary cycles. While yields fall before initial cuts, substantial declines usually require recessions. As growth concerns replace inflation fears, bonds have become a more dependable portfolio hedge.

Trumponomics 2.0. Trump's economic agenda will likely prioritize political messaging over implementation, continuing his 'America First' stance. While his policies pose risk of an economic slowdown, substantial stimulus measures could offset these, underwriting growth. According to the IMF, higher US tariffs would significantly damage US economic growth, with China, the EU and Thailand facing milder slowdowns.

Tariffs will likely hurt equity margin views. The potential of damage in the upcoming cycle would be more severe on global equity fundamentals if tariffs are more extensive or target a broader range of goods, compounded by elevated government and household debt levels. While Trump's initial tariffs impacted global corporate margins, companies with high US revenue exposure ultimately outperformed, demonstrating resilience.

Goldilocks to stagflation. Though markets are focused on immediate tariff risks, broader trade war implications remain underpriced. Potential tax cuts, defense spending hikes and immigration restrictions could fuel inflation, risking premature Fed tightening. A second Trump term likely means elevated China tariffs, weakening the global growth outlook for 2H25.

Amplify to diversify. Global trade policy shifts will reshape rate and currency dynamics. The return of inflation stands the key risk in 2025 to global equity positioning. With EPS growth convergence across regions, we suggest maintaining US exposure while tactically adding undervalued international positions to enhance diversification and hedge Trump trade risks.

Year of Jekyll and Hyde. Global monetary easing is underway, though Trump's tariffs will dampen the magnitude. Growth outlook remains cautious amid US trade risks, while Thailand faces persistent structural headwinds. Markets are likely to see elevated volatility with subdued returns: a good 1H25, deteriorating in 2H25. We expect the SET to rally and reach 1550 in 2025.

Focusing on domestic and defensive growth. We like companies that have earnings growth, with domestic consumption growing, backed by economic stimulus, and by nature defensive. On this basis, our top picks in 1Q25 are ADVANC, AOT, BCH, CPALL, and HMPRO.