Why Europe will power a big and beautiful 2025 for stocks

WHAT will 2025 bring for stocks?

Haze clouded my view in January. Three 2025 outcomes seemed similarly likely: US and world stocks could repeat big, 20-plus per cent booms. Or dip a little. Or grind out low single-digit gains.

But the haze lifted. Now, I foresee a brighter-than-feared 2025 – surprisingly, led by Europe. Here is why.

Stocks pre-price all widely known information and views. So, good forecasting requires seeing key forces that others miss.

That clarity arrived as I measured how European sentiment is much uglier than reality warrants. That pessimism is bullish – fostering positive surprise.

Big gains would shock most investors. America’s globally important S&P 500 has not logged three straight 20 per cent-plus years since the late 1990s – about when the Singapore Exchange was born.

Of 59 professional forecasters’ outlooks for the US market in 2025, only two top 20 per cent, including a recent revision. Surprise power makes big returns likelier.

Also, over the last 100 years, US stocks rose in 60 per cent of presidential inaugural years such as 2025. When up, inaugural years are usually huge.

With business basics healthy, earnings will climb. High correlations and America’s huge footprint make this positive globally – and for Singapore, too. The correlation between the S&P 500 and the Straits Times Index (STI) is 0.60 – which is high, given that 1.00 is lockstep movement and -1.00 is the exact opposite.

My biggest basis for optimism? Europe’s overly deep pessimism. Asia’s, too, albeit less so.

While most US investors cheer “pro-business” Republicans winning the White House and Congress, Europeans suffer Trump Terror.

Trade war fears dominated Davos, with US President Donald Trump threatening tariffs on all those not investing in America.

Echoing these fears, Professor Chan Heng Chee, ambassador-at-large at Singapore’s Ministry of Foreign Affairs, has warned of global tariffs potentially whacking Singapore’s trade-orientated economy.

Compounding the malaise

European Union (EU)-wide political chaos and weak economies in Germany and France compound Europe’s malaise. It extends the “Wall of Worry” that bull markets love to climb, allowing relief-driven positive surprise.

European political uncertainty is high, ahead of Germany’s upcoming vote and with France’s government teetering.

Fears of anti-EU populism spreading in Germany, Austria and throughout Europe fan the flames. But all that looks backward.

The rise of fringe parties simply scatters political support. That does not breed bad policy but, instead, government inaction via unwieldy coalitions.

Anticipate elections and horse trading delivering more gridlock in France, Germany and EU-wide – bullishly quelling political uncertainty.

Europe sees itself in a no-growth quagmire, dogged by “sick man” Germany. So, even minor growth will positively surprise – as it did in 2024.

In Singapore, the same holds – but to a lesser degree. Sentiment remains mixed – echoing much of Asia and partly underpinning the STI’s pullback since early-January’s all-time high.

Fearful commentators dismiss Singapore’s better-than-expected Q4 growth as fleeting, citing Chinese economic weakness and global trade war worries. That comes despite its largest trade partner meeting its 5 per cent 2024 growth target, and Singapore’s 2024 gross domestic prouduct growing its fastest in three years.

That so many dismiss the data and more leaves abundant room for positive surprise.

US tariff fears do, too. While Prime Minister Lawrence Wong warns of a potential “third world war” stemming from a US-China trade stand-off, threatened tariffs are often used as a bargaining chip.

Recall Trump’s first-term threats to tax EU auto exports – partly driving the EU’s free trade push with Singapore then. Like many others, they were just bargaining chips aimed at inking deals.

Now looks increasingly like then. One recent example: After threatening Colombia with a 25 per cent goods tariff, Trump struck a late January deal with the government on the deportation of migrants.

Tough talk

His tough talk on China echoes first-term talk, too, which ended with a deal. Much of Trump’s tariff talk now ties to concrete outcomes, such as Colombia – or to framework for a deal. He loves negotiating deals.

Trump has not directly threatened Singapore with tariffs – but they would not sting much even if they came. Only 8 per cent of Singapore goods exports go to America, half the EU’s 16 per cent.

Meanwhile, more economically significant services activity would not be touched much at all.

Then, too, fears of tariffs potentially hitting Singapore via their impact on China and global trade appear vastly overblown.

If not universal, Trump’s limited first-term tariffs prove they are easily dodged via inexpensive brokering through another country. That tees up ample room for relief.

So, expect these unforeseen tailwinds for Asia and stocks globally – but especially Europe. It is why Europe led America till January. And why German and UK stocks keep hitting all-time highs.

US and Singapore stocks should do well – do not avoid them. But deeply dour sentiment means European stocks should shine brightest in 2025. So shop globally – and be bullish.

The writer is the founder, executive chairman and co-chief investment officer of Fisher Investments, an independent investment adviser serving both individual and institutional investors globally