It promises to be a pivotal time for many investors, who will be faced with a higher tax bill following changes to the capital gains tax (CGT).
Since Rachel Reeves’ Autumn Budget announcement on 30 October, investors have had to pay an increased amount of tax on sales of shares.
The lower rate of CGT is now 18%, with the higher rate set at 24%, which marks rises from 10% and 20% respectively.
It was the Labour Party’s first Budget in over 14 years, which was shortly followed by Donald Trump’s re-election to the White House. As well as the UK and US, France went to the polls in July and Germany is set to go to the ballot box on 23 February 2025.
Indeed, almost half the world’s population voted in national elections, as the population of more than 70 countries cast their votes.
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With so many economic and geopolitical developments kicking off 2025, including the inauguration of President Trump on 20 January and the ongoing conflict in the Middle East and Ukraine, Schroders has predicted what markets could prove fruitful.
‘We expect a soft landing’
Johanna Kyrklund, Schroders’ group chief investment officer, said: “Leaving aside political risks, the economic backdrop remains benign. Inflation has moved in the right direction and interest rates are falling in the US and Europe.
“We expect a soft landing, and our expectation is that growth will reaccelerate as we move through 2025. Trump’s second term will represent an intensification of trends that were already in place: loose fiscal policy and an ongoing reaction against globalisation in the form of higher tariffs. We see scope for positive returns from equities in 2025, but investors may need to look beyond the recent winners.”
Kyrklund added: “Bonds don’t offer the same negative correlation benefits that they did in the last decade. However, the old-fashioned reason for owning bonds – to generate income – is back.”
In 2024, artificial intelligence (AI) and tech firms proved to be the dominant markets for global equities, with fund managers who had no exposure to AI often left with stagnant investments.
But a change of approach might be required to bag significant returns next year, one expert believes.
Alex Tedder, head of global and thematic equities at Schroders, said: “Despite the current elevated valuations, global equities, driven by a robust economic environment, can still offer reasonable returns. We anticipate a broadening of the market beyond the leading tech companies, uncovering value in previously overlooked sectors.”
Tom Wilson, head of emerging markets equities at Schroders agreed. He said: “Emerging markets offer compelling valuations, especially when excluding India and Taiwan, presenting unique investment angles.
“However, investors must navigate the uncertainties brought by geopolitical shifts and the changing US political landscape. We believe that a balanced approach, taking into account regional and sector-specific nuances, will be crucial for capitalising on these opportunities.”
Other areas predicted in the Schroders’ outlook to bring healthy returns are real estate and infrastructure, which it noted are “poised for growth”.
This is influenced by nations building the infrastructure required to move towards greener energy and decarbonisation.
‘Attractive for new private market investments’
Nils Rode, chief investment officer at Schroders Capital, said: “We anticipate 2025 to be an attractive environment for new private market investments, offering the potential for both return and income generation as several cycles align favourably. These include the private market fundraising, technological disruption and economic cycles.”
Rode added: “Simultaneously, considering ongoing geopolitical tensions and the elevated risks of escalating conflicts, the role of private markets in providing portfolio resilience remains crucial.
“Meanwhile, and despite political changes in the US, we expect the trend towards decarbonisation to persist, with private market investments playing a significant role in driving the global energy transition.”
