The MSCI World Index is up 21% this year, while the American S&P 500 has surged 27%. This significant growth outperforms the Stockholm stock exchange, which has only seen a modest increase of around 7%.
The soaring values of American large companies are reaching historic highs, largely driven by tech giants. Looking ahead to 2025, ABG Private Banking’s Chief Investment Officer, Jonas Andersson, believes there are other parts of the market that present more attractive opportunities. He predicts that American small-cap companies may stage a comeback after trailing behind the S&P 500 large-cap index in recent years.
Andersson notes, “The small-cap sector in the USA is still undervalued compared to large companies, with a discount of about 30% lower than historical levels. If earnings growth accelerates, as we expect, we see significant upside potential.” He also highlights that small companies benefit more from interest rate cuts due to their higher financing costs.
Furthermore, the investment chief assesses that Europe faces “a challenging journey ahead,” given the economic and political issues in France and Germany. However, he is more optimistic about Sweden, as consumption is expected to pick up after a few tough years. Andersson particularly emphasizes the banking sector as an interesting option for those seeking a defensive component in their portfolio.
“As we approach a normalized interest rate level, the valuation of the banking sector will also normalize. In the meantime, we have the support of dividends and buybacks at a rate of 10% per year. Combined, this should result in over 20% return over a two-year period,” he explains.
In conclusion, while the US market is currently surging, there are opportunities in other sectors and regions that investors like Jonas Andersson are eyeing for potential growth and stability in the coming years. It’s essential to diversify and consider various factors, such as interest rates and economic conditions, when crafting a well-rounded investment strategy.