Global Markets Defy Expectations, But Risks Loom
As the year comes to a close, global markets have surprised many by posting strong gains, despite initial predictions of a slowdown. World stocks are on track to record their second consecutive annual gain of over 17%, shrugging off geopolitical tensions, economic contractions, and budget chaos.
Wall Street’s Dominance
The driving force behind this rally has been the US market, with Wall Street stocks experiencing a second year of massive gains. Artificial intelligence fever and robust economic growth have drawn in global capital, propelling the dollar up 7% against its peers. The election win of Donald Trump has also boosted investor sentiment, with traders focusing on his plans for tax cuts and deregulation.
Risks on the Horizon
However, as markets enter 2025, they are increasingly exposed to US trends, which poses a significant risk factor. The Federal Reserve’s recent indication of fewer rate cuts has already roiled markets, and debt investors are growing anxious about Trump’s proposed trade tariffs and excessive borrowing.
Tech Giants Lead the Charge
The S&P 500 share index has surged 24% this year, with tech stocks leading the way. Shares in artificial intelligence chipmaker Nvidia have risen a staggering 172%, while Elon Musk’s carmaker Tesla has gained 69%. The combined value of the top seven US tech stocks now accounts for around a fifth of the global share index, raising concerns about market vulnerability if their earnings or AI technology disappoint.
Europe Struggles to Keep Up
In contrast, European stocks have underperformed their US peers, with the euro sliding around 5.5% against the dollar. Despite four European Central Bank rate cuts, the euro zone economy is still declining, although some forecasters predict a rebound in 2025.
Emerging Markets Feel the Pain
Emerging market currencies have been hit hard by US tariff fears and dollar strength, exacerbating losses for struggling nations. Currencies in Egypt and Nigeria have fallen around 40% against the dollar, while Brazil’s real has weakened more than 20%.
China’s Rollercoaster Ride
Chinese stocks have experienced a wild year, surging almost 16% in a single week in September before falling back. Investors who held on to China were rewarded with a 14.5% annual gain, but many expect the short-term boom and bust cycle to continue until Beijing takes direct action.
Bond Markets Face Uncertainty
Interest rates fell across big economies this year, but bond investors suffered annual losses as central banks delivered less monetary easing than expected. Next year looks challenging for bond markets, uncertain about how Trump’s policies will sway the US Federal Reserve.
Surprise Winners Emerge
Despite the challenges, some bond investors have found success in riskier markets. Lebanon’s defaulted dollar bonds returned around 100% over the year, while Argentina’s dollar bonds issued by Javier Milei, who has close ties with Trump, also returned 100%. Ukrainian bonds, boosted by bets that Trump could end Russia’s Ukraine invasion, returned over 60%.
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