How should you posture your stocks now? My 2025 forecast points to a stunningly strong, Europe-led year, with excessively dour European sentiment helping stocks with positive surprises ahead.
To capitalise on this, portfolio positioning is key – with stark differences from recent years. Let me show you what I mean.
While managing any portfolio, anytime, anywhere, always remember rule number one: Use a benchmark. Always! What is that? Any big, broad, market capitalisation-weighted index – one giving greater clout to stocks with greater market value. (Avoid “price-weighted” indexes like America’s Dow or Japan’s Nikkei, which both weigh constituents solely by share price.)
Broader benchmarks maximise opportunities and diversification. Example: the MSCI All-Country World Index (ACWI) includes more than 2,500 stocks across 23 developed markets and 24 emerging markets, including the UAE. That becomes your blueprint. How you vary from it sets your trade-off of risk relative to the global market versus your potential upside.
The world’s regional weightings may surprise you. Including Japan, the Asia-Pacific region overall is only about 16 per cent of the world’s market value. Europe is just 15 per cent, while America comprises a whopping 65 per cent. The rest? Mostly Canada, the Middle East and Latin America. Use these weights as your baseline, then tweak to fit your world view.
Hence, even in a Europe-led year, diversifying means having many of your stocks from outside Europe. Remember, you – and I – can always be wrong! Diverging too much from your benchmark ramps up risk. So, overweight Europe and underweight America. But don’t go wild.
Picking within these geographies is key. In 2023 and last year, the US led. Why? Big growth-orientated stocks within tech and tech-like communication services sectors comprise 39 per cent of US market cap, dwarfing the rest of the world’s 16 per cent. This turbocharged US returns. Such firms are less than 9 per cent of Europe’s market cap, though. No turbocharge.
Europe has few growth stocks overall, outside luxury goods … and those struggled last year as customers cut back – particularly in Asia. While world stocks returned 17.5 per cent overall last year (in USD), luxury goods stocks fell 9.5 per cent. That and a lack of big, growthy tech meant Europe lagged big time the past two years – returning a total of 22.2 per cent (in USD) in 2023 and 2024, while US stocks soared 57.6 per cent.
Now, that changes. As Europe leads, its dominant sectors and styles will soar. Europe is mostly value-orientated stocks – cyclical stocks that lead when economic expectations are too dour. That is now, as my forecast showed.
Financials and industrials – 41 per cent of European market cap – are offensive value heavyweights. Value is also scattered throughout consumer discretionary (think autos) and health care. These categories are your offensive value menu.
Where to seek exposure? Britain has ample financials – 15 per cent in banks alone! France, Italy, Spain and Switzerland offer more. Autos? Think Germany, Italy and France. Industrials, meanwhile, make up 18 per cent of European market cap. Germany, Sweden, Britain and France have the most exposure.
Health care can also provide offensive value, but not always. Categories like medical devices and pharmaceutical firms tilt towards growth-orientated. So be choosy, focusing on the big health care heavyweights in Denmark, Britain and Switzerland.
When Europe and value lead globally, value also leads in the huge swath of the world stock market that is America. It happened in the mid-2000s bull market. And during Europe’s brief 2012 leadership burst as the eurozone rebounded from its sovereign debt crisis. And now!
Through March 24, Europe is up 13.4 per cent year to date in USD, trouncing the ACWI’s 1.5 per cent. US stocks are down 1.8 per cent in USD, with US value up 3.2 per cent and US growth down 6.1 per cent. US tech is down more. It is a huge risk to skip America totally … too big. So, tilt your American stocks towards value.
Everywhere worldwide, dial down tech and growth-orientated categories and overweight value … maybe 65 per cent value and 35 per cent growth (to not take too much risk against the world).
Categories doing well in Europe should also do well globally. Japan offers oodles of autos and industrials. Hong Kong is 50 per cent financials by market cap!
But not all value is created equal. Consumer staples, utilities and real estate are defensive areas, likely to lag in any bull market year. Energy and materials likely lag, too. They are value heavyweights, but both move with oil and commodity prices. Abundant supply and slow-growing global demand are headwinds for them. Hence, their recent, sentiment-fuelled global leadership looks fleeting.
Own some in case things go awry. But focus on offensive value-orientated stocks for big gains as 2025 progresses.
