CITIC SEC: Outlook on overseas macro and asset allocation in 2025 after the US presidential election

CITIC SEC released a research report stating that with the dust settling on the US presidential election, there is unlikely to be significant changes in the global political and economic landscape and industrial chain restructuring trends post-election. However, global economic fundamentals and liquidity may change due to Donald Trump's election as US president, especially deepening the differentiation between global economic growth and policies. Looking ahead to 2025, overseas economies may exhibit characteristics of potential domestic demand recovery and concurrent risks of trade friction. In this macro environment, the recommended asset allocation order is: stocks > commodities > bonds. Key points from CITIC SEC: Economic growth: After the US election, the relative position of the major country's economic cycles remains unchanged, but economic growth rates are diverging, with potential for domestic demand recovery coexisting with risks of trade friction. The prospect of a soft landing for the US economy may gradually shift to expectations of recovery, with fixed investment growth possibly initially restrained before picking up, limited cooling in the labor market, and consumer resilience expected to be maintained. The resurgence of conservatism will exacerbate global trade uncertainty, but the ECB's rate cuts may boost Eurozone industry more than US tariff hikes would suppress it, with Eurozone consumer demand potentially benefitting from a revival in consumer sentiment. The direct impact of US tariff hikes on the Japanese economy may be smaller than on the Eurozone, with commercial investments potentially continuing to rise, and a positive tone towards wage increases likely to continue, strengthening the virtuous cycle of household income and expenditure. Inflation: After the US election, concerns about US inflation rebound while non-US inflation prospects remain generally stable. There is still room for cooling in US rental inflation, and the expulsion of illegal immigrants may lead to an inflation rebound but the magnitude is debatable, with the risk of a comeback of goods inflation following tariff hikes being a concern. High inflation in the Eurozone may already be a thing of the past, with a shift from anti-inflation to pro-inflation narratives possible, though the ECB forecasts that its inflation rate could remain around 2% by 2025. Japan's private inflation expectations are strengthening, with increasing awareness of the downsides of deflation, which is beneficial for sustaining demand-driven inflation momentum, and the positive cycle of price and wage increases could further consolidate, with less risk of returning to deflation. Monetary policy: With continuing differences in inflation and economic trends among the US, EU, and Japan, it is expected that monetary policy at the Federal Reserve, ECB, and Bank of Japan will continue to diverge by 2025. 1) Federal Reserve: Inflation returning to focus, or could once again become the primary factor in the Fed's monetary policy considerations, with an expected 25bps rate cut in December, and a space for 50bps rate cut next year. 2) European Central Bank: The ECB may continue to take the lead, continuing its rate-cutting path, with an expected 25bps rate cut in December and a space for 100bps rate cut by 2025. 3) Bank of Japan: Japan's positive wage-price cycle is strengthening, with at least 50bps room for rate hikes by the end of 2025. Fiscal policy: The US election may not change its fiscal situation, with the US and Japan expected to continue expansionary fiscal policies in 2025, while the EU will work on fiscal discipline. 1) United States: It is expected that Trump will smoothly introduce tax reduction policies, with the US fiscal situation continuing to expand, with a deficit rate of 8.4-9.1% by 2025. 2) European Union: Under the reform of the Stability and Growth Pact, it is expected that there will be clearer fiscal discipline restructuring from 2025, with possible reductions in deficits and debt levels of EU countries. 3) Japan: In an environment of political instability and continued weak inflation, the Japanese government is expected to maintain loose fiscal policy to stabilize economic growth and inflation by the end of 2025. Asset allocation: Stocks > commodities > bonds. 1) US stocks: Profit growth for tech giants remains steady, with rate cuts by the Fed and the prospect of a "soft landing" providing stable macro environment for US stocks, with profit recovery expected to spread from tech stocks to other industries. 2) Commodities: 2025 may be a pivotal year, with the gold market continuing until overseas economies bottom out, followed by fluctuations and rebounds in staple agricultural commodities. 3) US bonds: With the dual effects of increased supply and rising inflation, 10-year US Treasury bond rates are expected to rise by 2025, showing a downward trend followed by an upward trend, with a peak near 5.1%. 4) US dollar: Under the baseline scenario, the US dollar index is expected to remain strong, with room for a spike in the first and second quarters of 2025, while keeping an eye on Trump's possible "weakened dollar" policy. Risk factors: Overseas economic momentum falling short of expectations; unexpected policy changes in trade and immigration; inflation in the US and EU exceeding expectations; weak Japanese inflation persisting below expectations; unexpected Japanese energy subsidy policies; unexpected impact of sudden or unforeseen events such as the Israeli-Palestinian conflict; Fed raising rates unexpectedly.