Morgan Stanley 2025 Strategy: High-yield bonds steer steadily, copper and uranium lead the "supply-demand gap market".

Morgan Stanley's latest 2025 global strategic research report provides in-depth analysis and forecasts for key areas such as global economic growth, policy trends, asset allocation, and commodity markets, presenting investors with a comprehensive market guide. Macroeconomics: Differentiated Growth and Dollar Weakness Cycle With the shift in Fed policy, it is expected that there will be only one 25 basis point rate cut in 2025 (possibly in June), providing the market with a clearer judgment on the direction of US interest rates. As a result, the year-end target for the 10-year US Treasury yield has been lowered to 4.0%, down from the current 4.3%, with the decline in real interest rates being the main driver of this change. This indicates that in the current economic environment, there is a subtle shift in the pricing of funds in the market, and investors need to closely monitor the trend of real interest rates in order to grasp the investment opportunities in the bond market. At the same time, global interest rates are showing a converging trend. The European Central Bank maintains an accommodative monetary policy, with a target yield of 1.80% for German 10-year government bonds, compared to the current 2.84% yield level, highlighting the unique attractiveness of the European bond market in a period of declining interest rates. The Bank of Japan has delayed the rate hike expectation until September, anchoring the 10-year Japanese government bond yield at 1.2%. These actions indicate a gradual coordination and balance in interest rate policies among major global economies. The trend of the US Dollar Index (DXY) has also entered a new phase. Despite the limited rate cut by the Fed, the market's expectation of "US exceptionalism" is gradually shifting towards "global convergence," providing temporary safe-haven assets for non-US currencies like the Yen and the Pound. The target exchange rate for the Yen against the Dollar is 141, and for the Pound against the Dollar is 1.3, reflecting new market expectations for global capital flows and exchange rate balances. G4 Central Bank Policy Path: Prolonged Accommodative Cycle Currently, the monetary policy paths of major global central banks show a clear differentiation and adjustment trend, with the extension of the accommodative cycle as the main theme. However, the policy directions of different economies have their own characteristics, which have profound impacts on financial markets and the global economic landscape. In the US, the current policy rate is 4.375%, and it is expected to decrease to 4.125% by the end of 2025, with a key timing in June when a 25 basis point rate cut is expected. This rate cut expectation reflects the weakening momentum of US economic growth and the easing of inflation pressures. The Fed aims to balance the relationship between economic growth and inflation control by moderately reducing interest rates to support sustainable economic recovery. In the Eurozone, the current policy rate is 2.50%, and it is expected to decrease to 2.25% by the end of 2025, with a key timing possibly in the April meeting, where the ECB may signal accommodative measures. The Eurozone's economic growth faces many challenges, including the impact of geopolitical tensions on trade and weak internal market demand. By maintaining low interest rates, the ECB aims to stimulate investment and consumption, driving the economic recovery process. In Japan, the current policy rate is 0.50%, and it is expected to increase to 0.75% by the end of 2025, with a key timing in September where a 25 basis point rate hike is expected. Despite facing economic pressures, the Bank of Japan has adopted a relatively cautious strategy in controlling inflation and stabilizing the economy, with a relatively small rate hike indicating concerns about the fragility of the economic recovery foundation and comprehensive considerations of factors such as exchange rate stability. In the UK, the current policy rate is 4.50%, and it is expected to decrease to 4.25% by the end of 2025, with a key timing in the March meeting where it is expected to remain unchanged. The UK economy is affected by the aftermath of Brexit and the slowdown in global economic growth. After weighing various factors such as economic growth, inflation, and employment, policymakers chose to maintain rates unchanged in March, with adjustments to be made based on the development of the economic situation. Credit Market: Risk Rebalancing under High Valuations Currently, global credit spreads are near their lowest levels in 20 years, with a complex and fluid market environment leading to a subtle change in the indicators for credit bond investments. Based on in-depth market analysis and accurate forecasts, Morgan Stanley has proposed a "delayed reduction" strategy recommendation to provide investors with important reference guides for positioning in the credit bond market. Morgan Stanley believes that maintaining risk exposure in the first half of the year is a reasonable choice, but the key lies in precise rebalancing to adapt to the dynamic changes in the market. In terms of increasing holdings, high-yield bonds with low prices and high coupon rates are preferred, as they can provide relatively high returns in the current low interest rate environment, and their relatively low prices have valuation advantages and potential for appreciation, offering investors stable cash flow and capital appreciation opportunities. US high-yield BB-rated bonds are also a key area for increasing holdings, with current spreads at 291 basis points and an expected target spread of 250 basis points by 2025, indicating improved market expectations for credit risk and investment value, giving investors the opportunity to achieve higher returns with relatively controllable credit risk. Asian investment grade bonds are equally favored, with a target spread of 80 basis points. The lower spread implies lower credit risk and relatively stable returns, making them an ideal choice for balancing portfolio risk and return in the face of increasing market uncertainty. In terms of reducing holdings, Morgan Stanley points out that the risk of high-yield CCC-rated bonds is gradually accumulating. By 2025, their target spread will widen to 425 basis points, indicating a decreasing attractiveness for investments in this area due to rising credit risks. European single B-rated bonds are also included in the reduction range, with a target spread as high as 550 basis points. This reflects increasing market concerns about their credit conditions, as the default risk may further rise amid uneven global economic recovery and increased policy uncertainty. Cutting such bonds can help optimize the credit quality of the investment portfolio and reduce overall risk level. Commodities: Supply and Demand Dynamics and Structural Opportunities In the commodity market, trade tariffs and OPEC+ production decisions have become important factors affecting the oil market. Although initially expected OPEC+ to extend their production cutsProduction cuts agreement, but OPEC+ announced on March 3rd that they plan to gradually increase production from April as originally planned, while remaining sensitive to market conditions. Production may only increase slightly month by month instead of fully recovering. Morgan Stanley's updated supply and demand situation shows that the oil market will be looser than before, so they have lowered their oil price forecast for 2025 to $70 per barrel (from $75 per barrel).In the natural gas market, European natural gas prices have stayed at a high level due to tight supply, but headlines about the possibility of Russia resuming natural gas shipments to Europe led to a 10% price drop last week. If a ceasefire is achieved, it is expected that 10 billion cubic meters of Russian natural gas will return to the European market every year, increasing European natural gas supply by 5%. In the metal market, copper is the preferred base metal, with supply growth expected to slow down by 2025 and market positioning already cleared. The uranium market is seen as promising due to potential improvement in contract activities and disappointing supply. Silver has more upside potential than gold due to strong physical demand and declining yields. A moderate bearish outlook is held for nickel, aluminum, and lead, as nickel supply cuts may reverse and falling aluminum prices may keep aluminum under pressure. Key conclusion: Grasping convergence and differentiation In the investment market of 2025, Morgan Stanley emphasizes the theme of "global policy convergence" and "regional asset differentiation", providing clear direction for investors. Below is an in-depth analysis of five major investment opportunities based on this theme: Opportunities in gold and long-term bonds With global economic growth slowing down and increased policy uncertainty, real interest rates are on a downward trend. This trend provides a favorable market environment for interest rate-sensitive assets. Gold, as a traditional safe-haven asset, significantly increases in investment value in the background of economic instability and declining real interest rates. Investors may consider increasing their gold allocation to hedge against the volatility of other risky assets. At the same time, long-term bonds also benefit from the downward trend in real interest rates. Lower interest rates not only increase the attractiveness of long-term bonds but also bring opportunities for capital appreciation. For investors seeking stable income and risk hedging, allocating to long-term bonds is a good choice. Weakening of the US dollar and arbitrage opportunities in the yen, pound, and euro The US dollar index faces downward pressure in 2025. This change is mainly due to the expected rate cuts by the Federal Reserve and the background of global policy convergence. The relative weakness of the US dollar provides forex arbitrage opportunities for investors. Specifically, shorting the US dollar and increasing holdings in non-US currencies such as the yen, pound, and euro may generate returns from exchange rate fluctuations. The yen and pound exhibit strong safe-haven properties and appreciation potential under specific economic and policy conditions. Investors can use forex trading tools to flexibly adjust their forex asset allocations and grasp this market trend. Structural shortage and excess return of copper and uranium In the commodity market, copper and uranium are expected to be sources of excess return due to supply-demand imbalances. The copper market faces the issue of slowing supply growth while the demand for global electrification and infrastructure construction continues to grow. This supply-demand imbalance will support copper prices, providing medium to long-term investment opportunities for investors. The uranium market is also worth attention. With the recovery of the global nuclear power industry and increasing demand for clean energy, the demand for uranium is expected to rise. At the same time, uranium supply is relatively stable and limited, and this supply-demand imbalance will drive uranium prices up. Investors may consider participating in copper and uranium markets through related funds or derivatives. Prudence and focus on high-yield quality assets In the credit market, Morgan Stanley advises investors to adopt a cautious attitude. The overall market environment requires investors to pay more attention to controlling credit risks. Specifically, avoiding low-rated tail risk assets, which may face significant default risks during market volatility and economic downturns. On the contrary, focusing on high-yield quality assets is a more prudent strategy. These assets not only provide relatively high returns but also have good credit quality and liquidity. Through in-depth research and screening, investors can choose bonds issued by companies with stable cash flows and good credit records to achieve a balance between returns and risks. Regional asset differentiation: Grasping the investment characteristics of different regions Against the backdrop of global policy convergence, the performance of assets in different regions will show differentiation. Investors need to formulate differentiated investment strategies based on the economic situation, policy trends, and market characteristics of each region. In the US market, despite the slowdown in economic growth, its stock market still has investment opportunities driven by new policy expectations and corporate earnings growth. Particularly, industries favored by policy support and economic structural adjustments may show strong resilience. The European market is influenced by Germany's large-scale fiscal package, and there is upward risk in the eurozone economy. Investors can focus on European stocks with non-China exposure, as well as sectors benefiting from increased defense spending and internal demand recovery. The Japanese market is a highlight of 2025, with economic growth expected to further improve. In the background of sustained inflation and steepening yield curve, sectors such as banks, insurance, and real estate in the Japanese stock market have good investment value. Emerging markets are the least favored market by Morgan Stanley due to the increasing risks of trade tensions. When allocating in emerging markets, investors should remain cautious, focusing on risk control and asset quality. In conclusion, the investment market of 2025 is full of challenges and opportunities. Investors need to keep up with global policy dynamics, adjust their investment portfolios flexibly, and effectively manage risks while grasping the opportunities brought by policy convergence and regional asset differentiation to achieve steady asset appreciation.