Trump’s inward-oriented US policies will drive a rise in inflation, put upward pressure on interest rates and prevent central banks from making aggressive cuts, Man Group predicts.
The group also expects to see spreads widen in 2025, advocating for investment in small-and medium-size issues that trade with greater dispersion. “[These] present more security selection opportunities than the larger issues in the market, which are often overrepresented in indices,” the firm stated. In such an environment, passive investors would be at a disadvantage. “We expect dispersion to accelerate, with winners and losers emerging in the new regime.”
High-yield companies have benefited from low interest costs over recent years, with Man Group warning that the new landscape will add pressure to their fundamentals. “We expect to see difficulties in more cyclical sectors and believe that liability management exercises and outright defaults may increase in the future.”
In global markets, particularly emerging market debt and credit, geopolitical shifts and policy changes pose a threat moving into 2025. “Although local yields for JP Morgan Government Bond Index-Emerging Markets countries appear high and real rates are attractive in many cases, the overall differential to US yields remains at historical lows, offering little cushion against a further sell-off in US rates,” Man Group noted. Concerns of a hard landing in many markets, many of which rely on US Treasury rates and performances and activity in the Chinese economy, are high.
Asian fixed income markets will deliver the strongest performances in 2025, Man Group predicts. According to Moody’s, India, Indonesia and China will have the highest real GDP growth rate in 2025. In 2024, APAC sovereigns had the fewest downgrade and review ratings across emerging markets.
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