The macroeconomic outlook at the end of 2024 looks positiveinflation is declining and interest rates are falling. Despite this, valuations (53% in Spain vs 47% globally) and interest rates (47% in Spain vs 43% globally) continue to be the main concerns of institutional investors’ portfolios* for 2025, according to the results of the new survey published today by Natixis Investment Managers (Natixis IM).
Natixis IM interviewed 500 institutional investors who collectively manage $28.3 trillion in assets from public and private pensions, insurers, foundations, endowments and sovereign wealth funds around the world.
After a bull market After two years in which a large part of the gains have been concentrated in technology stocks, institutional investors point to valuations as their main market risk (53% in Spain vs 47% globally), and up to two thirds (59% % in Spain vs 67% globally) of institutional investors believe that equity valuations do not currently reflect fundamentals. However, respondents are optimistic, as three-quarters (75%, both globally and in Spain) believe that 2025 will be the year markets realize that valuations matter, although 78% of Respondents in Spain (72% globally) affirm that the sustainability of the current market rebound will be determined by central bank policy.
Recession fear fades
Sentiment has improved dramatically throughout this year, and the number of institutions that think recession is inevitable stands at 25% in Spain. Thus, 72% of institutional investors in Spain do not foresee any recession in 2025 and only 3% think that the recession will end the current rebound.
When it comes down to it, the vast majority (69%) of those surveyed in Spain advocate a soft landing in this region. Among the results, it stands out that none of the institutional investors Respondents in Spain expect a hard landing, and only 25% fear that a landing of the Spanish economy will not occur. Furthermore, 6% of those surveyed fear stagflation in the country.
Likewise, the vision is more positive regarding the inflationas more than three-quarters of global respondents say inflation will decrease or remain at current levels (38%) in 2025. Overall, two-thirds of global respondents (68%) trust inflation will reach expected levels next year, and just under a third (32%) remain concerned about the possibility of the global economy experiencing inflation spikes in 2025.
Economic threats
Despite this optimism, institutional investors continue to see a wide range of economic threats for the coming year, with their biggest concerns being the expansion of current wars (50% in Spain vs. 32% globally) and relations between the US and China. USA and China (34%, both globally and in Spain).
Although their market outlook may be optimisticinstitutional investors are realistic: despite the relatively calm development of the main asset classes during 2024, many institutions of the global respondents foresee an increase in the volatility of stocks (62%), bonds (42% ) and currencies (49%) in 2025.
On the other hand, although confidence in cryptocurrencies has more than doubled (38% compared to 17% in 2024), given the speculative nature of this investment and the volatility that usually accompanies it, 72% say that cryptocurrencies are not appropriate for most investors and another 65 % believe they are not a legitimate investment option for institutions.
However, portfolio plans show a high confidence levelwith 28% of respondents in Spain saying they are actively de-risking their portfolios (48% globally). What’s more, six out of ten Spanish institutional investors say they are actively taking on more risk in 2025 (four out of ten globally).
Javier García de Vinuesaresponsible for Natixis Investment Managers for Iberiahe points out, “In recent years, markets have experienced some of the most dramatic swings ever seen, but Institutional investors face 2025 with greater optimism due, in part, to widespread global confidence that inflation will reach expected levels next year. This, together with the perspective of the majority of Spanish institutions regarding the soft landing of the Spanish economy, makes them trust in their own capacity and that of the market to resist geopolitical pressures and possible macroeconomic changes. Few are changing their long-term strategy, but recognize they can improve their chances with tactical allocation changes. However, beyond the optimism exhibited by investors, the truth is that the forecast for next year has become more complex after the election of Donald Trump, which raises a series of questions that still have no answers.
Factors such as a potential trade war, possible decoupling of monetary policies and possible tensions in currencies can trigger an increase in volatility, which invites us to carefully analyze the situation.”.
Private market boom?
The institutions plan continue increasing its investments in alternative assets in 2025as half of Spanish institutional investors surveyed (61% globally) predict that a 60:20:20 portfolio diversified with alternative investments will outperform the traditional 60:40 mix of stocks and bonds. As for where they will invest that 20% allocation, institutions are clear that they want to add more private assets to portfolios.
Of all their options, almost three-quarters (73%) of global institutional investors are more optimistic about private equity in 2025which represents a notable increase compared to the 60% who thought the same a year ago. This is likely to change over the next year, with 75% of respondents in Spain (78% globally) believing rate cuts will improve deal flow in private markets and 66% of Spanish respondents (73% globally) believe that more private debt will be issued in 2025 to meet growing borrower demand.
Regarding his approach to private investmentsmore than half (54% globally vs 62% in Spain) claim to have increased their allocations to private markets. Overall, 52% of respondents in Spain (65% globally) say they are studying new areas of interest, such as opportunities related to artificial intelligence.
Markets will favor active management
81% of Spanish institutional investors (70% globally) affirm that markets will favor active management in 2025and almost seven in ten (66% Spain vs 67% globally) said their actively managed investments outperformed their benchmarks in the last 12 months.
Given the changing environment of interest rates and creditinstitutions are likely to benefit from active investing. In general, seven out of ten (69% in Spain vs. 70% globally) affirm that active management is essential for fixed income investment.