Investors may find fresh growth options after a strong run by shares

Shares surged higher in 2024 and their returns will be tough to repeat in 2025, but other investment opportunities appear attractive.

Investment growth is unlikely to be as easy to come by in 2025. Picture: iStock

Headwinds loom for shares and property in 2025, but other asset classes may be primed to perform.

Investment specialists say fixed income and credit assets have a positive outlook, while higher-for-longer central bank interest rates mean strong returns on cash should continue at a time sharemarkets appeared priced for perfection.

And in the battle between Aussie and international shares, the global group should do better.

New research by Colonial First State (CFS) has found the most widely held asset among Australians is a high-interest savings account, followed by ASX-listed shares and term deposits – with each of those asset classes twice as popular as international shares.

CFS chief investment officer Jonathan Armitage said a key headwind for local shares heading into 2025 was high valuations for the banks, which were priced at a “meaningful premium to global peers and their own history”.

Lel Smits from The Australian Shareholders' Association.

“We expect US earnings to remain among the strongest ­globally, but lofty valuations combined with high market expectations on the benefits of AI may see shorter-term headwinds,” Mr Armitage said.

He said inflation remained persistently high in many markets, and higher yields supported credit markets.

Infrastructure investments should deliver opportunities for “patient capital” in 2025, Mr Armitage said.

Australian Shareholders’ Association director Lel Smits said a further strong rally in Australian and global shares was “a tough ask in the year ahead”.

“Investors will be hoping predicted interest rate cuts offer a boost to global stockmarkets,” she said. “With the US elections now behind us, there is a degree of optimism heading into 2025. However, there has already been a strong run-up in many key sectors in 2024.

“Bouts of volatility in stockmarket sectors like mining and energy appear inevitable as geopolitical events continue to bubble away in Russia/Ukraine, Israel/Hamas/Lebanon/Iran and most recently Syria.”

Ms Smits said the mining sector could be poised for an uplift in 2025.

“Resources stocks have suffered this year but could rebound on the back of global economic growth,” she said. “Building sector stocks could also get a boost if the RBA finally moves to cut rates from mid-2025. Commercial property will continue to be hamstrung by structural shifts still playing out – work from home versus return to office.”

Shaw and Partners senior investment adviser Jed Richards.

Shaw and Partners senior investment adviser Jed Richards said interest-rate-linked investments such as bank hybrids should do well as interest rates remained higher for longer.

“The consensus for rate cuts is May but I think it’s going to be longer than that,” he said. “I like fixed and floating rate interest.”

Mr Richards said bank hybrids were a “quasi debt-equity instrument”, were currently paying yields of 6.5 per cent and offered the security of the big four banks.

“You don’t have to step into dangerous debt with those private debt guys,” he said.

Mr Richards said he was still buying international shares with a global focus such as Microsoft, Amazon and WiseTech.

“It’s going to be a wild ride in that end of the market, but in the next three to five years all of them should be bigger companies than they are today,” he said. “But it’s very difficult to find much value in Australia – there’s only four or five stocks I’m buying.”

These included BHP, CSL and Woolworths while it was out of favour, Mr Richards said.

Equity Trustees head of asset management Darren Thompson said equities were trading on high valuation multiples compared with long-term averages.

“In our view this leaves little buffer to absorb adverse developments,” he said.

“It appears that a second-term president Trump is in a hurry and will not be meaningfully slowed down, given Republican majorities in the House and Senate.

“While positive for near-term growth, these initiatives may add to inflationary pressures and result in higher-for-longer interest rate settings. Overall, much of the good news anticipated for 2025 appears priced into market expectations and investors should expect much more muted capital returns and flat or lower income in the year ahead.”

State Street Global Advisors said it had a favourable outlook for fixed income in 2025, as slowing economic output and tame inflation enabled central banks to cut interest rates further.

Its global chief investment strategist, Jennifer Bender, said there were pockets of opportunity across international markets.

“We expect Japanese equities to move sideways due to potential volatility, while Chinese equities may struggle in sustaining higher growth and strong performance despite the short-term relief from the country’s stimulus program,” she said. “At the same time, we believe US large-cap equity will maintain its structural advantage to the rest of developed markets.”

Originally published as Investors may find fresh growth options after a strong run by shares