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Geopolitical uncertainty shifts investor focus back to President-elect’s policies
The unpredictable patterns of geopolitical risks are expected to pose more challenges for investors in 2025, shifting macro-economic discussions towards analysing the effects of Donald Trump’s policies and quantifying the independent impacts of these changes, according to an asset manager.
Despite the uncertainty, opportunities remain in US equities across sectors such as financial services and energy, small capitalisation stocks, and non-US markets benefiting from the reshaping of global supply chains.
According to the Global Outlook 2025, authored by Ronald Temple, chief market strategist for Lazard’s financial advisory and asset management businesses, the 2024 elections, including Trump’s re-election in the US, have significantly shifted the narrative.
After “decades of globalisation, multilateralism, and relative geopolitical stability”, geopolitical conflicts are now at the forefront, influencing investors and corporate executives in their capital allocation decisions.
The report saidthat, from a market perspective, the biggest challenge will be quantifying the independent effects of potential policy changes and understanding how these impacts will interact.
The top geopolitical shifts include a potential end to US aid for Ukraine; uncertainty over the future of NATO; a less predictable US policy towards China, particularly regarding Taiwan; and possible escalation of the Middle East regional conflict out of the Persian Gulf, leading to a disruption in the flow of energy products.
“The more meaningful change will relate to Iran where I expect a resumption of the ‘maximum pressure’ campaign that significantly curtailed Iran’s ability to export energy products and participate in global commerce,” Temple said in the report.
He further said that the reimposition and enforcement of tougher US sanctions against Iran, combined with a more permissive approach to Israeli military action against Iran, could escalate regional conflicts.
According to Lazard’s top 10 geopolitical trends in 2025, the likely imposition of oil and financial sanctions through Trump’s “maximum pressure” campaign would aim to further weaken Tehran’s economy and military capabilities.
The report said that during Trump’s first term, these measures resulted in a reduction of Iranian oil exports by approximately 1 million barrels per day and an average economic decline of 1.6 per cent from 2018–20.
“Should sanctions lead to lower Iranian oil exports, the Gulf States could benefit by compensating for the production shortfall without causing substantial energy market disruptions,” the outlook said.
“However, the region is now much more unsettled than it was during Trump’s first term, making the balancing act between imposing sanctions and ensuring stability significantly more challenging.”
Opportunities in non-US equities
As investors reassess the relative winners and losers from the reshaped global supply chains, non-US markets are expected to offer “excellent opportunity to add capital”, according to Lazard’s Global Outlook 2025.
The report said that foreign direct investment into China turned negative in three of the last five quarters, with further capital likely to shift away from China in the years ahead.
Other emerging economies are expected to benefit from the production of everyday goods, while production of strategic and national security-related goods would shift back to developed economies.
“With record-high valuation discounts for non-US versus US equities, I believe investors would be well-served by taking another look at which companies are best positioned to benefit from this changing landscape,” Temple said.
US equity opportunities
According to the report, the initial response to the US elections in the equity market was positive, driven by profitability tailwinds such as lower corporate tax rates and less regulation.
However, the firm said that there would be “much more dispersion” within the US market when a “much less-friendly trade environment sets in”.
Some sectors, including financial services and energy, are expected to remain relatively resilient to policy shifts, while the consumer discretionary sector may be more vulnerable.
Temple also highlighted opportunities in small-cap stocks, a sector “reinvigorated” post-election. He said that smaller caps often benefit more from deregulation and lower corporate tax rates and are less exposed to the consequences of a global trade war.
“That said, I would argue in favour of a strategy that takes quality into account, given how many small companies consistently lose money and given that the cost of debt financing is likely to be higher for longer than previously expected, due to the inflationary impact of US trade and immigration policies,” he said.
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