This article was contributed by Mahesh Sethuraman, CEO at SAXO Singapore
The macroeconomic environment in 2024 was one of uncertainty. Last year saw significant events that swung markets both ways – from the U.S. presidential elections to stabilising inflation rates.
As we head into 2025, the only guaranteed constant is change. We live in an exciting world that is ever-changing when it comes to political regulations, technology advancements and economic shifts. Although change can be nerve-racking to anyone looking to invest, it brings with it numerous opportunities for Singaporean investors in 2025 and beyond.
It is important for Singaporean investors to look at investing on a macroeconomic level to fully leverage these opportunities. Understanding the ‘bigger picture’ provides a framework for making informed investment decisions, mitigating risks, and achieving long-term financial goals. It’s about looking beyond individual stocks or sectors and considering the broader economic, social, and political forces that shape an ever-changing world.
Here are 3 macroeconomic themes that Singaporean investors should pay close attention to in 2025.
#1 Gradual Rate Cuts – Bonds are Back
The U.S. Federal Reserve’s (Fed) interest rate decisions in 2025 will have a significant impact on investing across various asset classes – especially bonds and other fixed income securities.
Any raise or prolonged maintenance in interest rates will likely push down the value of bonds as investors potentially seek higher yields in newly issued bonds. This will, in turn, lower the value of existing or older bonds. Conversely, if the Fed cuts interest rates, existing bonds with higher yields become more attractive to investors as they were issued when rates were higher.
In fact, we are currently seeing this happen. The Fed hinted at fewer rate cuts for 2025 which signals that the committee has the desire to lower rates by enough to lift restrictions on the economy, but not by too much and too quickly where it incubates inflation. Recognising that the Fed is still in cutting mode and plans for more rate cuts, bonds rose as the U.S. 10-year Treasury yield hit a 14-month high at the start of 2025.
Before jumping onto the bonds train, Singaporean investors need to note that the Fed will consider a delay in its interest rate easing plans which will ultimately put downward pressure on bond prices. This scenario will happen if the Fed detects any potential resurgence in inflation as a result of the incoming administrations’ policies.
Regardless of how quick or slow the rate cuts happen, it is important for Singaporean investors to monitor the Fed’s interest rate actions. Being informed enables investors to recalibrate their portfolio and make more informed decisions in a dynamic investment landscape.
Read Also: How Stocks And Bonds Perform After The Fed Cuts Interest Rates?
#2 Spotlight on AI Software Solution Providers
Artificial intelligence or AI has been a hot topic throughout 2024 and continues its momentum into 2025. Despite a volatile 2024 amidst election uncertainty, geopolitical tensions and nagging inflation, the U.S. stock market hit incredible highs largely thanks to the AI rally.
This was driven primarily by The Magnificent Seven, a group of key technology players actively shaping AI’s future developments. These companies include Apple, Amazon, Microsoft, Meta, Alphabet, Tesla and Nvidia. These seven giants, boasting a combined 30.6% weighting in the S&P 500 Index over 2024, contributed to most of the returns in the market last year.
In particular, Nvidia, Microsoft and Meta have made significant developments in the AI space and have propelled The Magnificent Seven’s sustained growth. Nvidia alone saw its share price surge 171% percent which reflects current market sentiment and also anticipation of sustained demand for AI related products.
The market’s interest in AI will continue in 2025 but in a slightly different light. As adoption deepens, the focus will likely move toward companies offering scalable AI solutions for enterprises.
After fuelling a massive rally in AI hardware providers like Nvidia, the enthusiasm is now shifting toward AI software companies like Marvell, Snowflake and Palantir that enable AI applications across companies and industries. This underscores the growing realisation that AI’s true potential lies in its application across industries, not just in the hardware powering it.
Singaporean investors need to understand that not all AI companies are created equal and may not witness the same exponential growth as Nvidia. In fact, some companies may even be overvalued based on their future AI integration and/or developments as a result of the AI hype.
While there are huge upside opportunities in AI hardware and software stocks, it is crucial not to overexpose one’s portfolio to AI stocks. A diversified portfolio that is not overreliant on one sector will enable investors to mitigate risks while protecting and growing their wealth over a longer term.
Read Also: Donald Trump Is US President (Again). Here Are 5 Things That Singapore Investors Should Take Note Of
#3 Gold Rush
2024 was a tremendous year for gold with close to a 30% rise. Gold has historically been a safe-haven asset for investors as it generally tends to hold its value or even increase in value during times of market turbulence or economic uncertainty.
The demand for this shiny metal has risen due to uncertainty on how incoming policies will impact the USD and shape geopolitical trade relations. This sentiment is also carried by central banks as they aggressively increased their gold reserves in 2024 as a tool to diversify away from the USD and USD-based assets such as bonds.
While this precious metal may seem like an attractive place for Singaporean investors in the current macroeconomic climate, it is important to understand that gold, while considered a safe-haven asset, can still fluctuate and experience years of sideways movement.
The allure and demand for gold may also weaken if the US dollar gains strength this year against other currencies. Gold is typically priced in US dollars – making this asset class more expensive for holders of other currencies.
2025 will be an extremely exciting year for Singaporean investors. While there are many exciting opportunities out in the market, it is crucial to not overexpose a portfolio to one type of investment. Diversification is a cornerstone of a sound investment strategy. The macroeconomic landscape is ever changing and diversification enables investors to reduce exposure to risk and thrive in market fluctuations over a long period of time.
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