2025 Economic Outlook: Diversification Key Amongst Wavering Tech Stocks, Tariffs and Changing China Attitudes

Senior finance and investment professionals recently shared their views on the global 2025 economic outlook at a panel discussion in Hong Kong. They focused on the US, Chinese, and Asian markets, developments in AI, and recommended portfolio diversifiers.

Author: Jan-Patrik Reimann, Head of Compliance, Finance and Operations

Positive Stance on the US Market

The consensus on the US macroeconomic outlook was positive, with most investors choosing to overweight the overall market, but underweight tech. However, they encouraged diversified portfolios due to concerns around the budget deficit and technology stocks.

“In 2025 it will be hard not to be positive on the US”

The investors’ optimistic views on the US came from the fact that the GDP growth rate was at 2.6%, that both CPI and PPI had recently increased, and that inflation was coming under control, swaying concerns that the economy would go into recession. Interest rates reductions were also predicted for the second half of 2025. This perspective was, however, shadowed by unease, due to the Trump administration’s tariffs. The panellists agreed that the 25% increase in the budget deficit in Q4 2024 (as a consequence of the higher interest rates) and the occasional inflationary flares created a challenging balancing act for the Federal Reserve. They concluded that the uncertainty in the long-term underscored the importance of a diverse portfolio.

“You need to use slightly different instruments than just the core S&P 500”

Overweight US Financials and Utilities, Underweight Tech

With these considerations in mind, investors favoured US equities – especially financials and utilities – not least because these equities also displayed signs of future increases in growth. It was noted that deregulation and a less-than-expected fall in interest rates helped small- and mid-cap stocks rise. The financial sector also utilised factor rotation which was suggested by the investors to indicate a trading range market rather than a general upward trend. Meanwhile, panellists highlighted utilities as particularly important to have, as they return yield and can stabilise portfolios, even in the event of volatility.

“Everybody loved US tech, until maybe two, three weeks ago, everybody seemed to like capitulating on everything else, just running S&P 500. This recency bias poll is very, very strong. People always love to buy what's gone up and hate what's gone down.”

A cautious approach towards tech stocks was taken by the panellists – despite expectations of 25% growth in 2025 – due to a slowdown in earnings, concerns over bubble and concentration risks, and it being unclear as to which AI products or services can generate the most revenue (similar to the 3G and 4G era where service providers benefited more than telecom or smartphone manufacturers). Some investors advised focusing on hardware or laggards, while others argued that US tech stocks would remain significant due to their size and advised instead to time exits well or secure downside protection. The panellists, however, agreed that should worries about tech materialise, they expect other sectors such as utilities, which are intertwined with the production of tech, and financials to consequently pick up.

Tariffs May Have Limited Impact

The potential return of tariffs was discussed, and the consensus amongst the investors was that their impact may be limited since most countries trade more with China than the US. Many on the panel believed that Trump's administration intended to use tariff threats for aggressive negotiations, with employment gains outweighed by inflationary risk. Despite limited concerns, the investors nonetheless advised hedging against inflationary risks should tariffs be implemented. It was also mentioned that the consumer sector would be most affected, facing increased costs and tighter margins.

“We should be aware that the hottest thing hanging on Trump's lips is the tariff threat.”

Additionally, some warning signs of a faltering US economy were suggested: changes with DeepSeek, Alibaba, foreign currencies, and fixed interest, a high domestic yield, or an increase in the Treasury yield.

Caution on China Remains, with Optimistic Views for Tech and Private Sector

With regards to China, it was agreed that the shift in Premier Xi Jinping’s attitude towards technology and privatisation was positive. However, investor views on China were divided as – at the time of the panel – valuations were low, cash on hand was high, and yields had been decreasing and were at 1.67%.

Despite initial impressions amongst China experts that he was increasingly drawn to leftist political and economic ideologies, Xi was seen to be taking a more pragmatic and open approach towards the private sector, especially as he signalled that his administration would encourage innovation at a recent symposium. The panellists indicated that while this wouldn’t necessarily increase valuations by 20 – 30%, Xi’s more defined stance on the role of private technology companies in the Chinese economy, coupled with the dividend policy from 2022, could spur historically absent foreign investment.

“Jack Ma’s invitation to the symposium [where Xi announced support for private tech companies] served as a very important signal, especially provided what happened to him in 2021 tells a different story.”

The panellists thought Alibaba served as a compelling case study for foreign investors; in the context of uncertainty over how policy and regulatory changes would affect the business, the company’s earnings growth was determined to be not bad and was regarded as evidence of stabilisation and resilience.

Nonetheless, some panellists commented that international institutional investors underweighted China and were unlikely to enter the market soon, given the political climate.

Other investors believed the market to be very sensitive, which they said allowed for a small number of hedge funds, or even fund managers, to move into the market and prompt violent swings of 20 – 30% in a short period of time that would draw others into the market. Their advice for those interested in participating was to be mindful of such swings and to strategically structure products to shield against a potential downside.

“China has the money if confidence comes with it.”

Broader Asia Outlook Positive

Overall, the panellists thought there was substantial income potential across several investments in Asia. They noted that, generally, investors were focusing on China for short-term gains, Japan for medium-term, and India for long-term. India especially was being underweighted to capitalise on China's short-term opportunities. Due to the return of income and the availability of opportunities in the middle of the curve, the investors believed that prospective decisions in the fixed income sphere were simplified and that there was no need for excessive duration risk.

The investors were positive on other Asian markets that are dependent on domestic demand for growth, such as Indonesia, but turned neutral on China +1 markets like Vietnam and Malaysia as they noted Trump’s emphasis on onshoring jobs could potentially unwind the supply chain relocation trend of the past several years. Markets that are typically linked with the US technology supply chain, such as Korea and Taiwan, were treated with caution by the investors because of their close ties to US tech names.

The panellists also emphasised that portfolio diversifiers in Asia have changed because the previous correlation between growth and inflation no longer held true and resulted in several investors seeking new ways to diversify their portfolio.

Diversify Portfolio with Bonds, Physical Gold, and Silver

The investors recommended bonds, specifically investment grade bonds, as portfolio diversifiers. They noted that while the 10-year yield was higher than initially expected, particularly at the time of delayed rate cuts, they still offered decent coupons and had the potential to serve as an effective alternative in the context of an increasingly volatile market.

“Some investors are taking a complex approach to diversification, looking into things like alternative strategies, hedge funds, etc. while others are going simple, considering something old like gold and something new like Bitcoin.”

Gold was also suggested, as was silver. Noting that the latter, undervalued against gold but closely correlated with it, tended to rally stronger, the panellists regarded silver as a decent hedge to inflationary risk. Those who buy gold were further encouraged to ensure they hold at least part of it physically, in the form of coins and bars in a bank, as that can hedge against a systemic crisis or war in a way that the paper gold cannot.

The panellists believed Bitcoin still has primarily retail applications, and that the average trade size remains relatively small. They proposed that when considering a place for Bitcoin in a portfolio as a tool for diversification, its volatility should be balanced against its low correlation with US equities, with 2% regarded as a reasonable allocation.

*The speakers were not named, as it was a Chatham House Rule discussion.

Disclaimer: Whilst every effort has been made to ensure the accuracy of this article it is general in nature and does not constitute legal advice of any kind. You should seek your own personal legal advice before taking legal action. We accept no liability whatsoever for loss arising out of the use or misuse of this article.

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