United States and China, the yin and yang of the markets in 2025

January 2025 by Ana Carrisso

Whatever happens this year, investors should remember one fundamental lesson: no crystal ball for the investment industry.

There were a record number of elections around the world in 2024 and, although the political agenda will be less crowded in 2025, there will still be uncertainty. Investors should pay close attention to events such as the elections in Germany – and their impact on the stock and bond markets, the evolution of the political situation in France – which was influenced by instability and a growing budget deficit in 2024 – or how Donald Trump will implement his policies in his new term. They should also monitor commodity markets – gold hit all-time highs in 2024 – as they could be affected if tensions in the Middle East continue to rise. 

We forecast that the return of disparities will be one of the major themes of 2025, due to different policies, rates of growth, inflation and interest rate trajectories, as well as geopolitical differences. In other words, rather than looking at regions or asset classes as a single block, we will consider individual performance and where interesting investment ideas may emerge. 

Below, we highlight the differences between the two current global leaders: the United States and China. Authorities in these countries have expressed very different concerns so far this year.

USA: will inflation rise again?

The historic Republican victory, which returned Donald Trump to the White House with a majority in Congress and the Senate, resolved one of the big issues of 2024. Given the kind of promises Trump made during the election campaign (more tariffs, more public spending and stricter immigration controls), and the precedent he set in his first term, we think that the probability of inflation rising again in the United States in the next four years has increased. 

This could affect the monetary policy of the Federal Reserve, which began a cycle of interest rate cuts in the fourth quarter of 2024. It is worth remembering that a scenario of economic growth and rising inflation would not justify the need to lower interest rates, and could even lead to the opposite: new interest rate hikes to control prices if the economy “heats up” too much. 

Is China positioning itself to preserve or revive growth?

On the other side of the equation is China. The country has struggled to revive its economy after imposing COVID-related restrictions on the population for much longer than other nations. They have also had to deal with the bursting of a giant real estate bubble. In September 2024, the country's authorities launched a large stimulus package to pull China out of deflation and revive growth once and for all, but our view is that the country is positioning itself to preserve, rather than revive, its economic growth. This could be a problem, as market expectations are more optimistic, anticipating more fiscal stimulus and more interest rate cuts. 

Secondary consequences

This is an overview of how the geopolitical landscape could look in 2025. However, investors should also be aware of secondary consequences that are less clear. There are risks for some sectors arising from potential tariffs and new trade tensions between the US and China; however, we expect reflation in the United States to generate higher earnings for American companies. We are also monitoring the trend toward industry splitting, a policy that has been supported by both Democrats and Republicans. In China, we prefer sectors that already occupy a prominent place on the government's political agenda, such as technology, high-end industry, consumption and healthcare. 

Whatever happens this year, investors should remember one fundamental lesson: there is no crystal ball for investment. A major event can occur at any time, so you must do your homework: assess risks, review portfolio positioning and wait for opportunities to arise.