What to invest in before Donald Trump's inauguration?

published atJanuary 17, 2025Tags:analyses

The actions of the new US President Donald Trump will shape the global economic and market outlook in 2025, according to OTP Bank's 2025 Investment Strategy for Private Banking Clients. The bank's analysts believe that the actions of Donald Trump, the former and new president of the United States, carry several economic risks for the global economy. The potentially divergent economic trajectories may therefore require increased attention from an investment perspective.

Budapest, January 16, 2025 - A snapshot comparison of the economies of the two major global economic centres, the United States and the eurozone, shows that while downside risks have dominated Western Europe for years, the US economy remains strong, with no signs of slowing. However, the picture could change rapidly in 2025, as it remains to be seen exactly what the impact of the new US President Donald Trump's actions on the economy will be when he takes office on 20 January, says OTP Bank's 2025 Investment Strategy. In the compilation below, we highlight the main trends identified by the experts and the key findings.

We already know Trump is coming, we just don't know how

"During the campaign, Donald Trump threatened China and Europe with heavy tariffs and made it his campaign slogan to curb illegal migration. If he delivers on these promises, it could lead to higher inflation and slower economic growth for America," said Gergely Tardos, Head of OTP Bank's Analysis Centre.

At the same time, the new US administration's actions could also set back Europe's nascent economic growth, as the imposition of export tariffs also poses a serious downside risk to the eurozone economy.

By default, the inflation outlook suggests that the central banks' target for price rises in 2025 is sustainable - but Trump's inauguration could change this quickly. Europe has less upside risk than overseas due to slower consumption recovery, but geopolitics around the world could change the inflation picture we see now.

Such a rapid change could also be reflected in monetary policy. For the eurozone, the market now expects a further 100 basis point rate cut in 2025, but slower-than-expected growth and easing inflationary pressures could leave the ECB with even more room for easing. By contrast, the Fed could cut 50 basis points in the base case, according to most analysts, but if the above risks materialise, even this could end up being excessive.

Investments and risks

As the above shows, the risks associated with economic policy and geopolitics are even greater than usual in 2025 - and this, according to OTP Global Markets experts, will require even greater caution than usual when making investment decisions.

"In the short term, we expect a correction in the equity market, but the long-term uptrend may remain intact. Therefore, a well diversified equity portfolio and neutral exposure could be a good tactic in this asset class in 2025. In the bond market, neutral exposure to US government bonds should also be considered for the time being, while a slight overweight in eurozone longs is advisable," said Dávid Sándor, Head of Multi-Asset Analysis at OTP Global Markets.

Although US companies have the best prospects, they are also the most expensive, so corrections in particular could provide good entry opportunities in 2025 for overseas equity markets. Europe, on the other hand, is decidedly cheap, but there is no sign of what would trigger a major stock market rally on the continent. For emerging markets, a stronger dollar could be bad news, but some of the risks have already been priced in by investors since Trump's election. According to OTP Global Markets experts, the Chinese market may be interesting in the short term, but should be avoided in the long term, while India may just be a strategic investment in the current environment. In the region's equity market, analysts continue to see the weak European economy as a deterrent, while the market remains extremely undervalued. A possible positive development on the Russia-Ukraine war (e.g. a ceasefire) could be the catalyst for a major repricing in CEE.

Which sectors to watch?

In a new analysis, OTP Global Markets' experts have identified the technology sector as a promising target, which could be particularly attracted by developments related to artificial intelligence. Utilities, healthcare companies and the real estate sector are also worth a look, they say. In the United States, they see potential primarily in mid-cap companies, while Latin America remains attractive from a valuation perspective. They also believe that the Japanese equity market could slowly find its feet, while the Polish market in the narrower region could deserve extra attention.

At the same time, they point out that the economic and well-known geopolitical uncertainties described in detail can quickly and radically rewrite recommendations, even during the year. In the short term, for example, the start of Donald Trump's next presidential term will be crucially important: whether he delivers on his threats or backtracks on campaign promises.

This document should not be relied upon as a basis for any further analysis of the financial instruments referred to herein.
This document is for information purposes only, is intended to attract attention and constitutes advertising within the meaning of the law. The information contained in this document does not constitute an offer to the public, an investment recommendation, investment advice or investment analysis, or an offer, proposal or invitation to execute a transaction.

The information is limited. You can obtain more detailed information about products and services at the branches of OTP Bank Plc. and at www.otpbank.hu. Please read carefully the documentation, information, regulations, terms and conditions, notices, list of conditions relating to the given product or service before making an informed decision on the investment or service, and carefully consider the object of your investment, the risk, the fees and costs involved, the possibility of possible losses, and the tax legislation relating to the product or investment. The price of financial instruments and securities is subject to fluctuations, and spot sales may be made at the current exchange rate, which may result in exchange losses. The information and opinions contained in this document do not replace or substitute the issuance documentation (e.g. prospectus, management regulations), product brochures and announcements relating to the financial instruments concerned.

The individual circumstances, specific objectives, financial situation, target market, risk tolerance and risk appetite of potential investors are not taken into account in the general information contained in this document and this information does not constitute a suitable or sufficient basis for an exclusive investment decision. The risk of specific individual decisions and investments made on the basis of this document is borne by the client, and OTP Bank Plc is not responsible for the effectiveness of investment decisions, the achievement of the client's objective, or for individual investment decisions made on the basis of this document or any part thereof, or for the consequences thereof. Any investment involves certain risks which may affect the performance of the investment decision and the investor may not receive the amount of the investment that he/she had expected or invested, and may therefore lose the invested capital, the full amount or even a payment obligation in excess of the amount invested.

This advertisement reflects the market situation at the time of its preparation and its content is based on publicly available and sources widely believed to be reliable. OTP Bank Plc has relied in good faith on these sources believed to be reliable and does not make any warranty, guarantee or undertaking as to the completeness or accuracy of the information. The information is provided for information purposes only and is subject to change with market conditions and circumstances.

In accordance with applicable law, OTP Bank Plc disclaims any liability, obligation, warranty or guarantee for any direct or indirect damages (including losses arising from investments), costs or expenses, adverse legal consequences or other sanctions (including punitive and compensatory damages) suffered by any person or entity as a result of the purchase or sale of financial instruments or the provision of investment services described herein, even if OTP Bank Plc has been advised of the possibility of such events.

The preparation, uploading and publication of this document by OTP Bank Plc shall under no circumstances be deemed to constitute an intention on the part of OTP Bank Plc to make information on products/services available to persons for whom the use/acquisition of the product/service in question and advertising thereof is prohibited or restricted by the legal system of a country. This document is not intended for private investors in the United Kingdom or the United States, and OTP Bank Plc does not provide direct services to US investors.