What assessment do you make of 2024?
If we evaluate how 2024 has been due to the performance that the different asset classes have offered, at Santander Private Banking we believe that it must be evaluated positively.
In the end, the renta variableespecially in USAhas had quite good returns. In Europasomewhat less since mid-year, but also other great positive performances; Even in Asia, the part of emerging countries with China has recovered in the final part of the year. Other assets, such as orohave also delivered returns well above the average.
In fixed incomethis last part of the year has been less positive, but in aggregate it continues to have very attractive returns. He is positive balanceespecially if we see how we were at the beginning of the year, where there were various uncertainties, mainly the amount and the time horizon in which the rate cuts were going to take place. In the United States there were doubts about the expected performance differential between the Magnificent Seven and the rest of the stock market. Let’s not forget that we have also had a very intense year at the electoral level, and that it culminated with those US elections and all of this, in a geopolitical environment where we are seeing that it continues to be very turbulent and with those inputs that we had that generated a certain uncertainty.
In the end, we make a fairly positive balance in a year that has also taught us that there are always reasons to be cautious or to be negative, but that this does not prevent us from always being invested and of course, diversifying positions, one of the maxims that we usually maintain. .
With recent events on the table, do you think central banks will continue with their rate reduction plans?
It would be necessary to differentiate depending on which central bank we are talking. If we stick to developed geographies, we believe that the main central banks, especially the Federal Reserve and the European Central Bank, are going to continue with this process of monetary normalization towards neutrality levels. Right now we are placing that level of neutrality in USA around 3.5%, so there would still be about 100 more points of rate cuts by the FED.
In Europaon the part of the ECB, we believe that it would be closer to that neutral level between 2-2.25% and that during 2025 we would also continue to see this process of monetary normalization.
Different is the case of Bank of Japan which, as we know, is taking that reverse path towards levels of upward normalization of monetary policy and we would expect rate increases; and also in others such as, for example, Bank of Englandwhich would be more in line with what we have discussed about the FED and ECB; and on the emerging part also differences. In China we are seeing that a fairly lax monetary policy continues to remain, while others such as Brazil They have had to undo what they had done on that path of monetary relaxation and are returning to rate increases.
But as a general message, we believe that rate cuts will continue during 2025 towards normal levels for the main central banks.
And the bags? What direction are they going to take?
When we talk about the stock market we have to take into account the possible ways in which it can reap bullish returns, and here there are basically two: by expansion of the earnings multiple, which is a revaluation or growth of the earnings themselves, and here There will also be a differentiation in geographical terms.
In USAdue to the expansion on the part of the multiples, perhaps it would be less viable, given that we already have quite demanding valuations, but the expected profit growth is quite strong, so there would be a reasonable upward path for 2025.
And on the contrary, European equities share certain traits with Chinese equities. Perhaps profit growth on this side is less optimistic, but by valuation metrics, the multiples are below the historical average.
As conclusionin the United States the stock market has risen through profit growth, which are markets that have quite healthy growth of around 15%; and, both in Europe and China, potential for upward movement, but more through the revaluation of multiples than through profit growth.
In what values do you see opportunities?
As a strategy department, our focus is on the preparation of asset allocation, so we do not have recommendations for specific or concrete values. But we do have certain preferences in sectoral terms, always talking about variable income and differentiating also by geographies.
In USA All of these more associated segments, what has been called in recent months that “Trump trade”, would have potential upward path, companies in the financial sector, industrial companies, which have had protectionist policies and also around rate cuts. would benefit; consumer companies, especially discretionary, which we have seen in the United States that are still showing resilience and would also continue to do so during 2025; and energy companies, because in the end Trump’s policy seems more favorable towards these traditional energies and we believe that the sector could have good returns during 2025.
If we talk about European equities we have a more balanced sector preference. We have a preference for more defensive sectors, even now stable consumption, telecommunications, the health sector, which at a global level is a sector that we like and having very prominent companies at the European level that are expected to grow in profits and we would be a little more cautious with most cyclical sectors in Europe.
And to also give a global vision of the technology sectorwhich in the end has been the one that has had the most attention and the most headlines in recent years, we believe that it is a sector in which we must be in. It is true that it weighs heavily within the indices and perhaps an overweight seems too risky to us, but we believe that it is a sector to be in because although it has appreciated a lot and has demanding multiples, we consider it to be an attractive sector. .
How do you plan to manage the portfolios now?
In this aspect, we do not make tectonic changes in portfolio management from one year to the next or based on very specific events. We continue to bet on diversification in terms of assets. We see that there is a situation that favors having a certain overweight in equities in an environment of falling rates, solid profit growth, especially in the United States; and opportunities by valuation In other geographies in a cyclical situation that does not have signs of a recession in the short term, it makes us be positive in equities depending on the client’s risk profile.
In the aspect of fixed income, prudence especially in terms of duration. In recent weeks we have seen rebounds, especially in the longest stretches of the curve. We believe that, especially again in the United States, these derivatives of the “Trump trade” may lead to us seeing even more tension and, for now, we maintain that prudence in taking the duration. On the other hand, within the fixed income segment we have a preference for investment grade assets among the corporate segment with those companies with the best ratings, compared to high yield debt, where we see very tight valuation levels, very compressed spreads and we prefer to stay with higher quality companies for the moment.
And as for the satellite assets that we would maintain in the portfolios, we continue to have a very positive vision in the orowhich has been one of the star assets of the year, and with everything that surrounds it, we see it as a good asset to have as a satellite in portfolios.