The Year of the Snake set to be transformative, but guard against surprises
Investors should approach any period of change with a degree of prudence and portfolio diversification
CHINESE New Year is upon us, and traditionally the Year of the Wood Snake heralds a period of transformation. As global markets evolve over the next 12 months, there are a number of themes that investors will be forced to navigate, including the continued easing of global monetary policy as inflation moderates; a Chinese economy potentially requiring even more stimulus; and of course the second Trump presidency in the US.
The snake in the Chinese zodiac not only signifies transformation but also growth, introspection as well as intuition and intelligence. With a variety of policy and regulatory shifts likely in the US and elsewhere, investors will certainly have to be intelligent and nimble this year, potentially repositioning portfolio allocations.
Using the first iteration of Donald Trump’s presidency as a litmus test, it is highly probable that his second term will bring about significant challenges to the status quo.
This is why we believe the year will be transformative – just a like snake which regularly sheds its skin to unveil a fresher and shinier coat, readying itself for opportunities and challenges ahead.
Our global chief investment office, in its outlook 2025 report Playing your Trump card, highlighted how investors can position themselves this year to capture market opportunities. From our point of view, the US will be in the driver’s seat once again as business and consumer confidence get a boost following Trump’s election. This provides a basis for our asset allocation strategy.
Traditional and diversified investment mix
As investors globally continue to flock to alternative asset classes such as private credit, we maintain the view that a traditional and diversified investment mix is prudent this year.
Specifically, we expect global equities to outperform bonds and cash amid resilient economic growth led by the US and a potential recovery in China. We also see gold delivering another year of outperformance, playing its role as a safe haven and portfolio hedge amid geopolitical uncertainty.
Last year, gold had its best year in 14 years, outperforming even the S&P 500 equity index and setting new record highs. Sustained demand from emerging market central banks is likely to remain a key driver of gold prices; any inflation worries or falling bond yields would be a bonus.
Within equities, we are looking for another year of American exceptionalism, with US equities outperforming on the back of strong earnings growth, fuelled by Trump’s business-friendly, pro-growth tax cut, deregulation and streamlined government policies. We expect these policies to mitigate risks of increased trade protectionism and tighter immigration. Central bank policy, though, could eventually matter more as the Fed is likely to cut rates in the later half of the year to help the US economy achieve a soft landing.
Looking more broadly at the global macro economy and markets, the key debate is how soon and how much are Europe and China policymakers willing to ease fiscal and monetary policies to revive domestic growth in the face of a more restrictive US trade policy. Potentially punitive import tariffs by the Trump administration will trigger further monetary and fiscal policy easing in China, with an aim of boosting domestic consumption.
In the rest of Asia, the Bank of Japan is likely to stand out as the only major central bank raising rates this year as rising wage growth revives inflation expectations after decades of deflation. The other Asian central banks are looking to cut rates as inflation subsides, although they may have to wait for clearer signals from the US to make sure that Trump’s policies are not reviving inflation.
In Asia ex-Japan, we are overweight Indian equities. Although growth has recently softened and rate cut expectations have been dialled back, we are more confident about India’s long-term economic growth outlook and expect this to translate into continued earnings growth outperformance.
Monitor risks
Nevertheless, we need to monitor risks, given the significant transformation we are likely to witness in the Year of the Snake. We are on the cusp of several pivotal events that could alter the economic, geopolitical and financial market narratives.
President Trump’s first 100 days in office should provide greater clarity on his policy agenda. In China, policymakers are likely to provide further policy support measures that have the potential to revive growth. Finally, stronger US growth raises the risk of inflation, limiting the Fed’s headroom to continue cutting rates.
Against this backdrop, it always makes sense for investors to approach any period of transformation with a degree of prudence and portfolio diversification. Investment planning should not be all about capturing the opportunities. It is prudent to be prepared for challenges and not get caught by surprises.
When advising our clients, we are guided by five key principles of investment planning: staying invested; maintaining a diversified portfolio; focusing on time in market and not timing the market; balancing risk and return; and having protection against unexpected events.
The writer is global head of wealth solutions, deposits and mortgages, Standard Chartered
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Sign up here to get Decoding Asia newsletter. Delivered to your inbox. Free.
Copyright SPH Media. All rights reserved.
