Equities

Capture growth potential

For Professional Investors only.

While the global macroeconomic outlook appears supportive of riskier assets, growing policy uncertainty and heightened geopolitical tensions emphasize the need for greater diversification.^[1] Maintaining a long-term allocation to global equities can help investors achieve this diversification^[1] by spreading exposure across regions and industries, reducing reliance on any single market or economy.

This approach unlocks significant growth potential by leveraging innovation, corporate expansion, and structural shifts in the global economy. It can also help investors ride out periods of volatility, benefit from compounding returns, and capitalise on the sustained growth of global markets.

World equities

Global equities as a staple portfolio ingredient

Investment convictions

Outlook: A favourable earnings landscape combined with supportive macro liquidity creates a constructive environment for equities. However, elevated valuations, primarily amongst US equities, which account for over 70% of MSCI World^[2], warrant cautious positioning.

Preferences: Global equities remain a key portfolio component, offering diversification^[1] and potential for long-term growth in this setting.

ETF implementation ideas

AMUNDI PRIME ALL COUNTRY WORLD UCITS ETF
Management fees: 0.07%*

AMUNDI MSCI WORLD UCITS ETF DR
Management fees: 0.12%*

Developed market equities

Investment convictions

Outlook: Within DM equities, there is potential for the rally to broaden beyond US mega caps. In Europe, improving economic conditions could bolster value stocks later in the year, alongside the financial sector. Meanwhile, Japan’s ongoing corporate reforms are expected to support its local markets.

Preferences: In the US we favour small and mid-caps alongside an equal-weight approach to mitigate concentration risks and benefit from a resilient domestic US economy. We also look to Japanese equities, and value in Europe where we also see potential in the financial sector.

US equities – looking beyond mega caps

Earnings expectations for US equities are robust for the year ahead (see chart on the next page), especially compared to other international markets. However, the stretched valuations of mega-cap companies, while reflecting strong growth prospects and investor confidence, leave these stocks more vulnerable to potential market corrections.

Small caps present the strongest earnings growth potential for next year. This optimism is supported by their significant valuation discount relative to large caps (see chart on the next page), offering attractive opportunities for investors. Both small and mid-caps are also likely to be the primary beneficiaries of government policies to boost domestic industrial activity.

Notably, the 12-month forward price-to-book ratio for small caps (see chart on the next page) remains near multi-decade lows, even after recent market rallies. This positions them well to benefit from a scenario of increased domestic production driven by higher trade tariffs.

Strong earnings growth upside for US small caps

2025 estimate EPS growth (in %) - Bloomberg Estimate
Selected equity indices

US small caps at multi-decade discount vs large caps

12mths forward price-to-book premium
Russell 2000 vs S&P 500

Source: Bloomberg, Amundi. Data as at 15/11/2024. Past performance is not a reliable indicator of future performance.

AMUNDI MSCI USA UCITS ETF
Management fees: 0.03%*

AMUNDI RUSSELL 2000 UCITS ETF
Management fees: 0.35%*

AMUNDI S&P 500 EQUAL WEIGHT ESG LEADERS UCITS ETF DR
Management fees: 0.18%*

AMUNDI MSCI USA EX MEGA CAP UCITS ETF
Management fees: 0.15%*

An equal-weight index approach could add further appeal, mitigating concentration risks associated with traditional cap-weighted indices. By distributing exposure more evenly across a broader range of companies, equal-weight strategies can help minimise the risks associated with extreme valuations, capitalise on the broadening of the rally beyond mega caps, and provide access to overlooked growth opportunities.

European equities: Opportunities amid recovery

European equities valuation at multi-decade lows vs the US

Stoxx Europe 600 vs S&P 500 price-to-book premium

In 2024, European equities experienced modest gains^[3] and looking ahead, there are reasons for cautious optimism regarding equities within the region. Domestic and geopolitical uncertainty aside, over the next couple of years, the European economy is projected to experience modest growth,^[4] albeit below its full potential.

With inflation likely to fall towards the European Central Bank’s 2% target in 2025, a gradual easing of monetary policy is expected, which in turn, could boost economic activity by supporting household spending. Falling inflation should also provide a boost to real incomes in the region. It is also worth noting that European equities are currently trading at a significant discount to their US counterparts (see chart).

Source: Bloomberg, Amundi. Data as at 29/11/2024. Past performance is not a reliable indicator of future performance.

In this environment, we see opportunities in European value stocks, alongside the financial sector, which could benefit from an improving macroeconomic backdrop and the prospect of monetary easing. Europe is home to some banks that have strong capital buffers and are less sensitive to interest rate reductions by the ECB.

ETF implementation ideas

AMUNDI STOXX EUROPE 600 UCITS ETF
Management fees: 0.07%*

AMUNDI STOXX EUROPE 600 BANKS UCITS ETF
Management fees: 0.30%*

Japanese equities for value

We are optimistic about Japanese equities, viewing them as a strong value proposition that could benefit from corporate governance reforms. Japan’s long-term trends of rising capital efficiency and increasing shareholder returns remain robust, although we could see some market stress emanating from strength in the yen.

Adding to the appeal, Japanese companies have been actively implementing reforms to enhance transparency, fostering a more investor-friendly environment. These factors position Japanese equities as an attractive option for global investors.

ETF implementation ideas

AMUNDI MSCI JAPAN UCITS ETF
Management fees: 0.12%*

Emerging market equities

Seize the premium

European equities valuation at multi-decadel lows
vs the US

Stoxx Europe 600 vs S&P 500 price-to-book premium

Investment convictions

Outlook: The broader EM bloc has been resilient since the pandemic^[5] and its output is again expected to outpace DM in the year ahead^[6], with India likely to be an engine of growth in 2025.

Preferences: Indian equities performed well in 2024^[3] and again look like a solid pick when it comes to individual country preferences. We think a broader approach to EM Asia could also be considered given the positive trends not only in India but in Indonesia, Vietnam and others.^[5]

Emerging markets are again projected to grow at a faster clip than developed markets in 2025. It is this growth premium that could make EM equities an attractive proposition.

However, any strength in the dollar, coupled with geopolitical tensions, could be a cause of volatility in the near term.

Positive growth and earnings, and declining inflation are all supportive factors. External demand and trade within the region should further enhance resilience and connectivity.

India is well positioned, with its economy likely to gain momentum from domestic demand and infrastructure investment. Indian equities consistently outperformed^[3] broader EM throughout 2024.^[7]

Advanced East Asian economies account for 60% of global information and communication technology goods annually^[8], and Vietnam and Malaysia are rapidly increasing their share in the sector. South Korea is a big player in the semiconductor industry that is so crucial to AI development.

A blended approach to EM Asia equities – to capture the growth potential of these countries together with India and Indonesia – could be a consideration for investors who prefer a broader exposure to Asia.

Source: Amundi, IMF, Bloomberg earning estimates. Data as at 31/10/2024. Past performance is not a reliable indicator of future performance. “e” stands for estimate.

EM'S GROWTH PREMIUM TO REMAIN
Emerging Markets vs Developed GDP and EPS Growth
YoY, % change, 2025-2026 average

ETF implementation ideas

AMUNDI MSCI EMERGING MARKETS II UCITS ETF
Management fees: 0.14%*

AMUNDI INDEX MSCI EMERGING MARKETS UCITS ETF DR
Management fees: 0.18%*

AMUNDI MSCI EM ASIA UCITS ETF
Management fees: 0.20%*

AMUNDI MSCI CHINA A II UCITS ETF
Management fees: 0.25%*

AMUNDI MSCI INDIA II UCITS ETF
Management fees: 0.85%*