- Asset Risk Consultants asked 98 CIOs about the biggest risks investors faced
Uncertainty on what 2025 holds for investors is rife as the new year begins.
Donald Trump is preparing to take the US presidency after his thumping election win in November, heralding the possibility of heightened tensions with China.
Concerns also remain around inflation, and a US equities sector which is heavily tied to the fortunes of big tech.
In the latest edition of its quarterly Market Sentiment Survey, investment consultancy Asset Risk Consultants asked 98 chief investment officers what they thought the biggest risks investors faced this year were.
One of the main fears highlighted by CIOs was the likelihood of a trade war between China and the US under a second Trump administration.
Concerns: CIOs warn that a trade war between the US and China could impact investors
US to up trade tariffs on China
With the new president’s inauguration set to take place later this month, there are fears that the US could be on course to expand trade tariffs.
While these are expected to affect a number of countries, with Canada and Mexico expected to face 25 per cent tariffs, the bulk of the new tariffs could be set for goods coming from China.
Trump has pledged to add an additional 10 per cent on top of the new tariffs. According to Reuters, the median tariff anticipated by experts to be levied on Chinese goods is 38 per cent.
Germany’s Central Bank president Joachim Nagel previously said: ‘At present, the biggest source of uncertainty for the forecast is a possible global increase in protectionism.’
If Trump institutes these policies as expected, there will almost certainly be retaliatory measures from China and possibly other countries that are targeted.
James Cooke, deputy CIO at ARC, said: ‘The reality is that many of the risks are interlinked.
‘Trade wars combined with a China slowdown could lead to heightened Taiwan tensions which would lead to fears over advanced node semiconductor manufacturing, which in turn would impact many of the Magnificent Seven.’
Equities dominated by big tech
This leads to the second major concern investors are facing. Equities markets in the US are dominated by a select few companies, largely made up of the Magnificent Seven: Amazon, Apple, Tesla, Microsoft, Meta, Alphabet and of course Nvidia.
The latter has gone from strength to strength in 2024, having gained an eye-watering 185 per cent since the beginning of the year.
Nvidia shares are trading at $134.29 each on 2 January, with the chipmaker alone constituting more than six per cent of the S&P 500 index.
Overall, the Magnificent Seven accounts for around a third of the value of the index. In 2024, this meant that the S&P 500 grew almost 25 per cent, compared to the paltry five per cent growth seen by the FTSE 100.
However, this also means that the fortunes of the US’ predominant index are tied with those of just seven companies, and if the AI bubble bursts then these fortunes could turn quickly.
Despite this, the ARC survey showed that net sentiment towards equities has increased to 56 per cent, from 21 per cent in the past 12 months.
However, sentiment towards European and UK equities has waned, while bonds have also fallen out of favour.
Inflation hasn’t gone away
Another area of concern for among CIOs is the prospect of further inflationary pressures on economies, possibly leading to a slower reduction in interest rates.
Cooke said: ‘Inflation rising too much could force central banks to tighten monetary policy more aggressively and the money supply is a significant detriment to the return on risk assets.’
He added: ‘On the brighter side, there continues to be rather a lot of cash in money market funds or “dry powder”.
‘We would not be too surprised to find 2025 is a year of heightened “animal spirits” and increased M&A activity which tends to be good overall for equity prices, particularly of slightly smaller companies.
‘Perhaps this means we will actually see the broadening out of equity markets that many managers talked about around this time last year.’
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