Cover (Photo: Getty Images/ Jianying Yin)
(Photo: Getty Images/ Jianying Yin)
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James R. Sullivan, the managing director and head of Asia Pacific equity research at J.P. Morgan, reminds us that nature can teach us a lot about fickle market movements. Here’s how the year ahead is shaping up
Currents are fickle things. One moment they are sweeping all before their path, dislocating things from their proper place, moving in unison a range of discrete items. Mindless, currents push forward. Fighting against such a thing means fighting nature—which is likely to be a futile attempt.
The next moment, the currents split into myriad streams, collect in adjacent tidepools, and begin to move at different speeds and in different directions.
Market dynamics often mirror the flow of currents: Strong trends dominate before splintering into diverse opportunities. It is the same with the global equity and currency markets—and, as in nature, it’s futile to fight it.
In 2024 market trends were carried along by the way the United States’ economic growth and corporate earnings outperformed the rest of the world—call it “US exceptionalism” at play, or momentum fuelled by stimulus measures totalling over $5 billion US dollars. This was further amplified by the movements of central banks worldwide: interest rate adjustments drove significant capital into risk assets (i.e., assets that people are more willing to take risk on when money is cheaper), creating a broad and synchronised market surge.
However, momentum also led to extremes. For example, US equity valuations reached levels seen only twice in the past thirty years, while market volatility hit a three-decade low.
But by late 2024, these strong currents started to change.
Above In 2024 market trends were carried along by strong currents that includes the US’ outperformance in terms of economic growth and corporate earnings (Photo: Mary Leibundgut/ Wikimedia Commons CC 4.0)
In 2024 market trends were carried along by strong currents that includes the US’ outperformance in terms of economic growth and corporate earnings (Photo: Mary Leibundgut/ Wikimedia Commons CC 4.0)
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Key trends for 2025: Divergence and fragmentation
The synchronised movements of 2024 are giving way to more localised and diverse market behaviours. Asian markets began to diverge from US markets in November 2024. Central banks and governments around the world are beginning to diverge as well, pushing stimulus packages and market reforms in different directions and at different speeds.
In the meantime, recent announcements from the US Federal Reserve have led some to believe that interest rates will remain higher than expected, meaning money will be more expensive, meaning risk assets may be, well, riskier. That calm we saw in US equity markets is now over, with the US market recently on its longest losing streak since 1981.
This means that in 2025, successful investment strategies will focus on identifying areas of opportunity that are self-sustaining and less reliant on broad market momentum or even on conventional wisdom. These movements act less like currents and more like tidepools, able to make their own way and outperform outside of the bigger currents.
Here are a few key trends to watch:
Above US Federal Reserve Chair Jerome Powell in a press conference in Washington, D.C., the United States, on Sept. 18, 2024. (Hu Yousong/Xinhua via Getty Images)
US Federal Reserve Chair Jerome Powell in a press conference in Washington, D.C., the United States, on Sept. 18, 2024. (Hu Yousong/Xinhua via Getty Images)
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Look to Japan and South Korea
Recent reforms in the Tokyo Stock Exchange and in the Korea Exchange aim to address historically inefficient capital management. Companies in these markets are restructuring balance sheets and increasing shareholder returns. These efforts are expected to narrow the valuation gap between Japan, Korea and global equity indices, making these markets attractive for investors.
Artificial Intelligence will continue to be a definitive technology
AI investments exceeded US$1 trillion in 2024, rivaling the scale of the US defense budget. While AI-related sectors, such as data centers, have seen rapid growth, questions remain about monetisation and overcapacity. As AI transitions from training models to inference, computing power demands may decrease, creating potential shifts in industry dynamics. Investors should focus on companies with clear paths to profitability.
Above As AI transitions from training models to inference, it also creates potential shifts in industry dynamics (Getty Images)
As AI transitions from training models to inference, it also creates potential shifts in industry dynamics (Getty Images)
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Self-sufficiency is security
Asian nations are prioritising domestic supply chain resilience and energy security. China’s policies to strengthen tech self-sufficiency have driven performance in sectors like quantum computing, semiconductors, and smartphone supply chains. Additionally, rising energy demands and AI’s power requirements are boosting opportunities in nuclear energy, particularly in Japan and China, and will likely continue to do so for several years.
Defense in a complex world
Geopolitical tensions and global power shifts drive uncertainty, which in turn has triggered a surge in defense spending. Asia’s defense contractors, particularly in South Korea, Japan, and India, are benefiting from export growth, with their export sales rising from five per cent to 50 per cent in recent years. This trend positions these contractors as key players in the global defense market.
Asian markets driven by Asia
One last concept as we ponder the year ahead. Domestic investors are increasingly calling the shots in markets across the region. For instance, in October 2024, Indian domestic investors mitigated a US$10 billion foreign equity sell-off by purchasing over US$13 billion. This growing trend of internal fund flows is expected to shape market performance across the region
Lastly, 2025 is poised to be a year of many opportunities but requires two things: First, a recognition that the strong currents that drove many assets to perform in similar ways in 2024 has now splintered into many smaller streams; and second, focus on identifying these sectors and regions poised to thrive independently of broader market currents.
As markets fragment, adaptability will be the key to success. By paying attention to emerging trends like AI, regional defense and structural reforms in Asian markets, investors can navigate the complexities of 2025 with confidence.
James Sullivan is managing director, head of Asia Pacific equity research at J.P. Morgan
