Friday the 13th: what’s spooking investors in 2025?

As the year draws to a close, investors are increasingly spooked by an array of challenges lurking in the shadows. From inflationary pressures and geopolitical tensions, to stretched valuations and market concentration, uncertainty haunts the outlook for 2025. Fund managers remain vigilant, and highlight the key risks they see in the year ahead.

Geopolitical turmoil

Geopolitical instability continues to disrupt the outlook for 2025. The re-election of Donald Trump has added unpredictability to global trade and foreign policy. His “America First” agenda, marked by tariff threats and protectionist rhetoric, has created unease among investors.

The Trump administration’s unpredictability raises concerns about how trade relationships with China and Europe will evolve, which could ripple through equity and bond markets alike. Ongoing conflicts in Ukraine and the Middle East only add to the sense of unease. Low consumer confidence and a volatile geopolitical backdrop could weigh heavily on demand across Europe and beyond.

Read more: Trump’s second act

The persistent phantom

Although inflation has eased in some regions, it remains a lingering concern. Ben Edwards, manager of the BlackRock Corporate Bond fund, cautions that inflationary pressures could resurface, particularly in the US, where fiscal stimulus and potential trade disruptions may drive prices higher. “There’s still significant uncertainty about how inflation will evolve, especially with interest rate cuts expected to be slower than many anticipated,” he notes.

In Europe, the story is different, but no less troubling. Weak economic growth and strained consumer spending have left the region vulnerable to recessionary pressures, while sticky inflation in sectors such as services continues to complicate central bank policy.

Read more: how two experts plan to navigate 2025

A bubble ready to burst?

The astonishing strength of US equities, led by the Magnificent Seven tech giants, remains a double-edged sword. Investors need to remember that these tech leaders, while dominant, cannot carry the market forever. A correction could really spook investors. While US markets have delivered strong returns, their high valuations make them vulnerable. This concentration risk could turn into a nightmare scenario for investors heavily weighted in US equities.

5-minute watch: Equities 2025: where are the opportunities?

The ghost of consumer weakness

In both the UK and China, consumer fragility looms large. Simon Murphy of VT Tyndall Unconstrained UK Income fund highlights the subdued confidence in the UK market, which persists in spite of improving economic indicators. “We’ve seen relentless outflows from UK equity funds in recent years. Until sentiment turns, the recovery will remain fragile,” he explains.

In China, a shaky property market continues to dampen consumer confidence. However, recent fiscal and monetary measures offer some hope for stabilisation. While the consumer remains fragile, targeted support could prevent the worst-case scenarios from materialising.

Read more: Is China at a turning point?

AI: boon or bane?

The rapid adoption of artificial intelligence is seen as both an opportunity and a risk. Chris Ford, manager of the Sanlam Global Artificial Intelligence fund, is considering the challenges tied to regulation with the new Trump administration and AI adoption rates. The promise of AI is immense, but the sector faces growing scrutiny, and companies need to prove their solutions deliver real economic impact. “We’re also keeping a close eye on Nvidia. How big is Nvidia’s addressable market over time and how successful can that company be in reinvesting itself, not merely as a provider but beyond that, into an ecosystem provider, providing the software framework and related services?” he says.

Cautiously optimistic

While we remain cautiously optimistic, the risks for 2025 serve as a chilling reminder of the fragility of global markets. From geopolitical uncertainty to inflation and stretched valuations, investors must tread carefully. It’s important investors remain diversified in an environment like this, and the ability to adapt and think long-term is critical. Investing is as much about managing risks as it is about pursuing rewards.

As we navigate the year, Friday the 13th feels like an apt metaphor for the challenges ahead — an unpredictable path where caution and preparation will be essential to avoiding financial missteps.