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1、December 2024|2025 global outlookFor Professional Clients and Qualified Investors Only.2025 global outlookTouchdown?2December 2024|2025 global outlookIn our 2024 investment outlook,we stressed the importance of staying humble.It turns out that we were correct in many of our conclusions,not least tha

2、t inflation and growth dynamics would vie with political risk to dominate the market narrative.But when looking ahead to 2025,humility remains more important than ever.The big macro story is,of course,Donald Trumps victory in the US presidential election.And the temptation is to assume similar econo

3、mic and market responses to his agenda today as to the policies advanced by the first Trump administration.This would be a mistake,in our view.Indeed,we believe markets are mispricing a host of risks and opportunities regarding the outlook.What we can say with certainty,though,is that many of the th

4、emes that will likely drive investor returns next year,and for the rest of this decade,are just as relevant to public markets as to their private counterparts.These include digitalisation,demographics,decarbonisation and deglobalisation.ForewordMany of the themes that are likely to drive investor re

5、turns are,we believe,just as relevant to public markets as to their private counterparts.Sonja Laud Chief Investment OfficerBill Hughes Global Head of Private MarketsWhen looking ahead to 2025,humility remains more important than ever.3December 2024|2025 global outlookThats why for the first time in

6、 this report,we are publishing the entirety of our private markets outlook,from Rob Martins investment strategy and research team,alongside the regular contributions our clients have come to expect.Key takeaways include:We expect another strong year for private credit,amid higher-for-longer rates an

7、d strong bank competition We see tactical opportunities in real estate due to significant repricing While leverage and refinancing costs are likely to weigh on some areas of infrastructure,we think others will see robust asset creationWe also discuss:Why we think market participants may be underesti

8、mating the impact of future US tariffs and what that means for the fabled soft landing The prospects for fixed income strategies after the end of peak rates The options for defined benefit pension schemes with hearty surpluses Why we believe the economics of clean power is compellingly simpleBlended

9、 solutionsWith private markets playing a growing role in portfolios,we favour a targeted,thematic approach when allocating to the asset class.We expect approaches that balance exposure to it,with mechanisms to deliver liquidity,will become increasingly important,as investors ultimately look for blen

10、ded public and private market solutions.This also explains the broader focus of our outlook and the strategy underpinning our newly formed Asset Management division,which seeks to harness our expertise across both public and private markets.In doing so,we are realising the vision of our parent group

11、 for a growing,simpler,and better-connected Legal&General.Our objective is to meet the shifting needs of our customers,clients and partners regardless of what the future brings.Source:LGIM internal data as at 30 June 2024.The value of an investment and any income taken from it is not guaranteed and

12、can go down as well as up,and the investor may get back less than the original amount invested.We offer solutions across both public and private marketsOur capabilities are aimed at meeting the diverse and evolving needs of our clientsIndexTraditional and alternative approaches,including ETFs and fa

13、ctor-based investingGlobal TradingTrade execution and managementResearchCross-asset analysis that harnesses our intellectual capitalActive StrategiesHigh-conviction portfolios in global fixed income and equitiesSolutionsLDI and other strategies to address our clients investment objectivesMulti Asset

14、Risk-managed,growth and income portfoliosPrivate MarketsReal estate,private credit,infrastructure,venture capital&private equity4December 2024|2025 global outlookEconomicsChallenging a complacent consensusTim Drayson Head of EconomicsWe think market participants may be mistakenly extrapolating the r

15、eflationary effects of the first Trump administrations policies and underestimating the impact of future tariffs.In 2024,the US economy delivered solid growth,alongside falling inflation and a rebalancing labour market.However,the recent presidential election result could challenge this benign econo

16、mic environment,in our view.Donald Trump has won a strong mandate for radical change by winning the popular vote and control of Congress.Weve heard about his policy plans for deregulation,tax cuts,tariffs and immigration,but we dont know the timing,magnitude or likelihood of their implementation.For

17、ecasters are making assumptions amid the uncertainty,but so far are sticking with a continuation of the soft-landing narrative and a positive view on US productivity trends.Three key themes are emerging:1.Additional tariffs are expected on China,but only for a steady phasing in later in 2025 and 202

18、6.2.Tariffs outside of China are assumed to be limited,though the risk of a broadening is recognised.Tariffs are seen as raising the price of goods impacted,but this inflation impulse is perceived as temporary.The hit to growth is considered modest and offset by the positive growth effects from dere

19、gulation and tax cuts.3.Forecasters expect the administration to slow the inflow of immigrants,but deportations beyond criminals are considered extremely difficult.We think the current market consensus is complacent and mistakenly extrapolating the reflationary effects from Trumps policies during hi

20、s first administration.Today,the economy is later cycle.Inflation is above,not below,target and the budget deficit much wider.Fiscal policy might not bring the widely hoped-for stimulus,as Congress could look for offsets to pay for extending tax cuts expiring next year.This could involve curbing gov

21、ernment spending or rolling back parts of the Inflation Reduction Act,but lawmakers will likely resist any reductions to popular programmes.This means tariffs are potentially an attractive,albeit risky,way for Congress to raise revenues.5December 2024|2025 global outlookRecession riskConsensus could

22、 also be underestimating both the extent of tariffs and the impact for any given tariff level.The experience from the first Trump administration shows that tariffs are largely passed onto consumer prices.So there is a direct squeeze on real incomes and consumer spending.But during his first term,the

23、 overall effective tariff rate only rose around two percentage points.If Trump now follows through on previous promises and implements a 60%tariff on China and 10%on the rest of the world,the impact is likely to be eight times larger.It is not clear whether the effect will be linear.The disruption t

24、o supply chains,chilling effect on business confidence and investment,as well as potential retaliation and tightening in financial conditions,could interact to conceivably trigger a global recession.Outside of the US,consensus has some concern around the negative implications of the America First po

25、licy.China is likely to be most adversely affected,although its reliance on exporting to the US has roughly halved since the first wave of tariffs were introduced in 2018.European growth has been sluggish and fiscal policy is set to turn more restrictive in most countries in the region.It remains to

26、 be seen whether Germany will ease the debt brake to address some of its structural challenges.Finally,we are cautious on the UK.The recent tax-raising budget appears to have dented business confidence and pushed up interest rates,which could offset any growth boost from increased government spendin

27、g.If the UK gets caught in a global trade war,the Bank of England might need to deliver a faster pace of easing than markets currently anticipate.The disruption to supply chains,chilling effect on business confidence and investment,as well as potential retaliation and tightening in financial conditi

28、ons,could interact to conceivably trigger a global recession.Consensus growth forecastsSource:Bloomberg as at 19 November.Assumptions,opinions and estimates are provided for illustrative purposes only.There is no guarantee that any forecasts made will come to pass.0123456USEAUKChina%change on a year

29、 earlier2024202520266December 2024|2025 global outlookFive potential upsets to watchAsset AllocationEmiel van den Heiligenberg Head of Asset AllocationMisplaced market confidence in how Trumps policy agenda will unfold provides a wealth of trade ideas for our portfolios.As Harold MacMillan observed

30、in the 1960s,“events,dear boy,events”represent a constant irritant for those in the business of making forecasts.With the former UK prime ministers comment in mind and amid the uncertainty around Trumps plans and his ability to implement them we look for places where widely anticipated implications

31、of his agenda could prove inaccurate.Rather than taking positions based on the probability of tariffs or corporate tax cuts,we think it is more productive to look for evidence of poorly calibrated confidence in the market impact,as noted in Tims piece.We look for places where widely anticipated impl

32、ications of his agenda could prove inaccurate.7December 2024|2025 global outlookPotential surprise 3:US inflation fails to igniteAs a team,we go into year-end short duration,as speculation can build on what the new administration means for the inflation and fiscal outlook.But we intend to rotate tha

33、t position back to a more structurally positive duration outlook once that reset in expectations is done.Curve steepening is a clear Trump trade that could come unstuck as the year progresses.Here are five such examples that are on our radar as we approach 2025:1.Source:GSXETRFS Index,Bloomberg,as a

34、t 19 November 2024.Potential surprise 1:Tariffs have no impact on risk appetiteIn terms of pricing,we see evidence of the market engaging with tariff trades.European tariff-exposed names are down 15%since June1;Treasury/bund spreads have widened by 50 basis points since September,as at the time of w

35、riting;and theres been aggressive inversion of the US inflation curve since August,with no change in European or UK inflation curves.All this has happened alongside nebulous concerns that tariffs are an underpriced risk.We struggle to make these things consistent.Potential surprise 2:USD dominance d

36、isappointsThere are widespread expectations that tariffs imply a stronger US dollar,due to FX moves re-equilibrating trade flows in response to a relative price change and upward pressure on rates from higher inflation.We think that view ignores the potential impact on capital flows.As a country wit

37、h a trade deficit,the US needs continually to attract overseas capital.Potential surprise 4:EAFE to outperform(finally)Amid conviction in yet more US equity outperformance,investors are prepared for the worst in Europe,Australia and Far East(EAFE)equities.But with the hurdle for positive surprises l

38、ow,we will be looking to add risk in non-US equities where we see opportunities.Japan is likely to be toward the top of this list.Investor appetite for Japan is subdued,while corporate profitability has been on a rising trend,with little by way of multiple expansion.Potential surprise 5:Renewables b

39、eat expectationsThere are expectations that Trump may take aim at the Inflation Reduction Act,which has been a big support to renewables in the US.However,there are reasons to believe Republican lawmakers may not repeal the act,at least not wholly,as noted by Aanand.The large proportion of jobs crea

40、ted by the act being in Republican jurisdictions,plus precedent for projects already underway to retain benefits,chief among them.The most obvious trades dont often work outSource:Bloomberg LP.LGIM.Performance under Trump measured from inauguration(20 Jan 2017 to 20 Jan 2021),performance under Biden

41、 measured from inauguration day to 10 November 2024.The past is no guide to future performance.EnergyMaterialsIndustrials Consumer DiscretionaryConsumerStaplesHealthcareFinancialsInformation TechnologyCommunication ServicesUtilitiesReal Estate020406080100120140-100-50050100150200Total return under B

42、iden(2021-2024,%)Total return under Trump(2017-2021,%)Energy the worst performing sector under Trump and best performing sector under Biden8December 2024|2025 global outlookPrivate markets:watch this spaceAnother trend to watch in 2025 is the rise of private markets,and the knock-on effect for their

43、 public counterparts.We see this as a positive dynamic,with small caps taken out by private equity firms,leveraged loans used as an alternative source of non-bank finance for high yield names,and venture capital money driving the upscaling of innovation.In the context of multi-asset funds,private ma

44、rket assets can increase diversification*,while providing a way of accessing illiquidity and complexity premia.As such,they can allow us to capture periodic dislocations in public/private pricing,at the same time as offering exposure to themes such as affordable housing and transport infrastructure.

45、This schematic summarises the combined medium-term and tactical views of LGIMs Asset Allocation team as of 31 October 2024.Asset allocation is subject to change.The midpoint of each row is consistent with a purely strategic allocation to the asset/currency in question.Regional equity views should be

46、 read in conjunction with the overall equity view.The strength of conviction in our medium-term and tactical views is reflected in the size of the deviation from that mid-point.The value of an investment and any income taken from it is not guaranteed and can go down as well as up,and the investor ma

47、y not get back the amount originally invested.Our key asset class views*It should be noted that diversification is no guarantee against a loss in a declining market.OverviewStategic allocationEquitiesDurationCreditInflationReal Estate Fixed incomeStategic allocationGovernment bondsInvestment gradeHi

48、gh yieldEM USD debtEM local debt Equities (inter-region views)Stategic allocationUSUKEuropeJapanEmerging markets CurrenciesStategic allocationUS dollarEuroPound sterlingJapanese yenEM FX 9December 2024|2025 global outlookCompetition,dealflow and defaultsPrivate CreditLushan Sun Private Credit Strate

49、gistWe think macro conditions are supportive of another strong year for private credit,but are watching out for higher-for-longer rates and strong bank competition.Private credit demonstrated remarkable resilience in 2024,despite high interest rates.Performance has been strong across both investment

50、 grade(IG)and sub-investment grade(sub-IG).With more rate cuts expected on the horizon,we believe future returns are likely to be lower.We still think,however,the all-in yield(about 5-8%for IG,8-12%for sub-IG debt)should be attractive in comparison to the very tight spreads in public credit.New issu

51、ance activity was buoyant in 2024.Both IG and sub-IG markets recorded notable year-on-year growth.Decarbonisation and digitalisation have been the leading force in driving opportunities across renewables,data centres,power networks,transportation and social infrastructure.We expect this to continue

52、into 2025 and beyond,driven by the huge capex needs of the green and digital transitions(for more,see Aanands piece).10December 2024|2025 global outlookPrivate placement issuance in the first three quarters of 2024 was largely concentrated in utilities,energy and infrastructureSource:Private Placeme

53、nt Monitor,October 2024Payment-in-kind interest is becoming more prevalent in sub-IG private creditSource:Cliffwater,September 2024Market competitionA recovery in bank lending in 2024 has increased competition.The pressure is more acute in sub-IG,where asset managers are trying to deploy over$400bn

54、of dry powder2 in what we see as a weak M&A environment(a big proportion of sub-IG private credit deal activity is driven by private equity transactions).This has led to a significant compression in direct lending spread over 2024 and,in our view,raises the risk of lenders underwriting riskier deals

55、 which could create problems in future years.We expect a revival in M&A activity in 2025,supported by deregulation under Trump and further rate cuts.This should,we believe,tilt market dynamics in favour of private credit lenders,as an increase in investment opportunities is likely to reduce the pres

56、sure on credit spreads.However,given the general macro uncertainty and competitive pressure from banks,we stress the importance of robust underwriting and structural protection and being sufficiently rewarded for any risk taken.Wary of complacencyDefaults in sub-IG private credit have been,in our vi

57、ew,surprisingly low given elevated interest rates most indicators range between 2%and 4%3.Strong earnings growth and cost management are the primary drivers.Another contributing factor is the increasing use of payment-in-kind(PIK),which has helped borrowers conserve cash and avoid defaults.While the

58、 use of PIK is not necessarily a sign of financial distress,we are wary of complacency.Trumps re-election has,in our view,raised the risk of higher debt costs for longer.We dont believe borrowers who over-leveraged during the pandemic years are completely out of the woods yet.2.Source:Preqin,as at N

59、ovember 20243.Source:Proskauer,Goldman Sachs,KBRAWe stress the importance of robust underwriting and structural protection and being sufficiently rewarded for any risk taken.Sports,media&telecom3%Energy infra14%Energy6%Utility20%Other infra14%General industrial14%Tech/bus svc2%Consumer&retail8%Finan

60、cials8%Healthcare1%Real estate&gaming10%6.0%6.5%7.0%7.5%8.0%8.5%9.0%Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021Q2 2021Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022Q4 2022Q1 2023Q2 2023Q3 2023Q4 2023Q1 2024Q2 202411December 2024|2025 global outlookFinally,2024 was the year that private credit lenders joined arms with

61、banks as they looked to additional growth avenues.Many partnerships have been announced,most notably the$25bn direct lending programme between Citi and Apollo.The coopetition model should,in theory,allow banks to retain client relationships and offload balance sheet unfriendly assets.Private credit

62、lenders can leverage banks enormous network and underwriting expertise,enabling diversification into a broader array of asset classes and a wider client base.Good risk management will be core to the success of these partnerships,in our view.However,they could expand capital to parts of the economy u

63、nderserved by banks,therefore proving a positive for growth in GDP and the asset class generally.Private equity and venture capitalPrivate equity and venture capital went through another challenging year in 2024,as both dealmaking and exit activity remained sluggish.Despite the difficult backdrop,pr

64、ivate equity and venture capital both registered positive returns over the last 12 months,according to Preqin data.In our view,this reflects GPs reluctance to mark down asset values which has caused a mismatch in buyer and seller pricing expectation and contributed to the market slowdown.Lower rates

65、 should help close the gap,although we expect buyers to remain focused on fundamentals as GPs try to exit the backlog of portfolios companies that has built up since 2022,holding valuation multiples in check.One bright spot has been AI and machine learning.Capital invested year-to-date in this secto

66、r across both private equity and venture capital reached over$150bn,nearly 60%higher than 20238.There may be question marks over the valuation and long-term profitability of AI companies,but we expect the sector to continue driving investment activity in 2025.UK university spinoutsThe UK university

67、spinout sector,in our view,is a highly impactful asset class that can offer exposure to growth businesses across key industries such as healthcare,clean energy and advanced computing.As a result of maturing ecosystems around key university hubs and supportive government policies,we are now seeing th

68、e UK spinout market enter its next phase of evolution.This unique combination has fostered an environment conducive to the growth of innovative businesses,where companies are now being built to scale and take products directly to market,as opposed to developing products for earlier acquisition by te

69、ch giants or large corporates.As the sector enters the next phase in its evolution,we expect to see a UK spinout market which we believe will better facilitate the creation of global industry champions of the future,putting it on the cusp of significant growth.12December 2024|2025 global outlookTime

70、 to dash from cash?Active Fixed IncomeColin Reedie Head of Active Strategies/Co-Head of Global Fixed IncomeJason Shoup Chief Investment Officer,LGIMA/Co-Head of Global Fixed IncomeIf we have passed peak rates,could fixed income funds be in place to benefit?In recent years,high interest rates have ma

71、de holding cash attractive for many investors.With some money market funds yielding almost 5%,who can blame them?However,with the major central banks signalling peak rates in the autumn of 2024,this trend may be coming to an end.The market has priced in another bout of policy easing from the US Fede

72、ral Reserve(Fed)in the first half of 2025.We think it is entirely possible that cuts of 100 basis points or more will arrive by March,as the fabled soft landing is at last achieved.Inflation has been moderating in the major economies,while growth in the US remains strong,if weak in Europe.In an envi

73、ronment of slow and gradual cuts,we think yields on fixed income remain attractive by the historical standards that matter the memories of current market participants.Money market assets vs Fed funds rateSource:Bloomberg as at 18 November 2024.The value of an investment and any income taken from it

74、is not guaranteed and can go down as well as up,and the investor may not get back the amount originally invested.42500004750000525000057500006250000675000072500000123456$mEFFR(%)January 2022April 2022July 2022Ocotber 2022January 2023April 2023July 2023Ocotber 2023January 2024April 2024July 2024Octob

75、er 2024Effective Federal Funds Rate(EFFR)ICI All Money Markets Funds Total Net AssetsWe think yields on fixed income remain attractive by the historical standards that matter the memories of current market participants.13December 2024|2025 global outlookCashing outWe consider this to likely be posit

76、ive for fixed income strategies as we expect significant inflows in search of these yields.This is,in our view,doubly attractive as we expect spreads to remain rangebound for the foreseeable future,allowing investors to earn the extra carry.Where rate cuts end remains an open question.But when we ha

77、ve a clear picture,we could well see corporates issue more long-dated debt in efforts to lock in lower coupons than theyve faced for several years.This could in turn incentivise some investors to move away from cash,even if money market funds keep growing to match asset allocation percentages preval

78、ent before the global financial crisis.With this backdrop,strategies with different drivers of return to cash may be placed to benefit.Short-dated credit could be rewarded for taking on more duration;absolute return strategies are more alpha-driven,but conversely may also offer solace from any poten

79、tial rates volatility.Alternatives may deliver a complexity premium.The Trump unknownHowever,as pointed out by Emiel and Tim,it is far too early to have any certainty around the second Trump administrations policy agenda.On the one hand,tariff levels mooted during the campaign will likely be tempere

80、d in reality;on the other,winning the popular vote,all swing states,the Senate and the House gives the incoming government a clear mandate for radical change.The immediate market reaction to the election result suggested a consensus that Trump will be positive for growth and nudge inflation and rate

81、s back up.However,we would question this narrative.A tough programme of tariffs may cause an inflationary bump in the short-to-medium term,but we think the chilling effect of such a policy even in moderate scenarios may be underpriced,given their potential impacts of business uncertainty,supply chai

82、n disruptions,and second order impacts on private sector investment and employment.14December 2024|2025 global outlookGrowing confidenceReal EstateBill Page Head of Real Estate ResearchDespite the risks,we expect 2025 to be a much stronger year for asset performance and market liquidity.Lower policy

83、 and market interest rates over 2024 had helped real estate yields stabilise,with tightening in some cases.We think uncertainty regarding the future path of rates weakens conviction for meaningful real estate yield compression next year.This has already been broadly anticipated in many forecasts,how

84、ever.In the UK,PMA predicts a modest-20 bps over 2025-20294 while in the US,Green Street eschews yield forecasting and places its emphasis on operational income growth.This allies with our view on markets:Real estate returns are expected to be reasonable,based on yields that have already reset and s

85、ubsequent income growth not yield compression.In our view,market pricing and valuation,which bifurcated in 2022,now appear closer,suggesting most of the correction has now happened and that there is greater confidence in fund and asset valuations.Valuation yields also look very close to where our mo

86、dels suggest they should be,albeit with the UK marginally ahead of the US and Europe.The risks to such models are market interest rates settling higher for the nearto-medium term(i.e.,ignoring current volatility)with income growth insufficient to compensate.Although economic growth is unexciting,it

87、is not recessionary.The UKs budget was deemed to have a broadly neutral effect on growth expectations.As Tim notes,Trumps re-election is broadly seen as pro(nominal)growth,albeit more inflationary.The situation in Europe is more sluggish,although recent readings beat expectations.We therefore expect

88、 modest income growth.PMA,for instance,forecasts 2.4%annually for Europe and 2.7%per annum for the US over the 2025-2029 period for prime real estate.Valuation changes since market peak,H1 2022-H2 2024Source:MSCI,Legal&General as at June 202482.077.884.570.075.080.085.090.095.0100.0105.0Jun 22Dec 22

89、Jun 23Dec 23Jun 24June 22=100Asia PacificGlobalUKUSEurope exclu.UK4.Source:Property Market Analysis,as at September 2024In our view,market pricing and valuation,which bifurcated in 2022,now appear closer.15December 2024|2025 global outlookOur sector viewsIdentifying the locational and sectoral tilts

90、 to beat these averages is,of course,key.The market consensus remains broadly focused on living and industrial sectors,which is understandable given compelling structural tailwinds.We believe selectivity is critical for relative performance,preferring multi-let and urban logistics relative to region

91、al logistics and a very geographically targeted residential allocation across specific tenures.We acknowledge slowing performance in industrial leasing but see this as a temporary pause after exuberant take-up during the pandemic.We are broadly more cautious on retail than the consensus,with less bu

92、llish views on the consumer.We are,however,aligned with strategies around repriced assets in suitable lot sizes.Offices remain difficult on average but extensive repricing creates opportunity for resilient assets in specific locations.It is difficult,however,to see investors taking binary locational

93、 risk in this sector;this could become a crowded trade.Investment volumes remain low,with global capital historically hesitant.This is inconsistent,we think,with our more positive narrative for sector performance.We reason it reflects the slow journey between positive pricing signals to fund raising

94、 strategy to deal execution.We expect 2025 to be a much stronger year for asset performance and market liquidity.Occupancy trends in the US,last 10 yearsSource:Green Street,Legal&General,as at September 2024507510012515017520022520142015201620172018201920202021202220232024Rent/occupancy index;2014=1

95、00ApartmentIndustrialOfficeRetail(strip)Global real estate investment volumes by source(to Q2 2024)Source:MSCI(RCA),as at September 2024We see residential sectors offering investors outperformance while providing societal benefit.There is diversification across tenures with,for instance,Build-to-Ren

96、t residential offering rental growth linked to wage and economic growth while Affordable Housing has a more explicit inflation linkage.Demographic pressures will support long-term demand,in our view,with spatial differences in urban growth,identified by investors modelling,allowing for tilts relativ

97、e to benchmark.Leasing activity in industrial sectors has slowed.But rental growth remains positive suggesting rental tension remains with occupiers accepting of higher rents despite pressure on their costs.We see the sector as well supported by the 4D megatrends with,for instance,deglobalisation en

98、couraging the on-or near-shoring of supply chains and decarbonisation encouraging more efficient delivery networks close to population centres.0%10%20%30%40%$0$500$1,000$1,500$2,000200720082009201020112012201320142015201620172018201920202021202220232024BillionsDomesticGlobalContinental%Cross-Border1

99、6December 2024|2025 global outlookRevisiting the lessons of 2022-2023InfrastructureMarija Simpraga Infrastructure Research ManagerThe trajectory of inflation and interest rates will likely play a crucial role in determining infrastructure capital flows and valuations next year.In 2024,while total re

100、turns remained resilient on average,fundraising and transaction volumes remained under pressure,likely due to the elevated interest-rate environment.Infrastructure valuations stabilised,albeit at a somewhat subdued level compared to historical averages.Given the US election result,our view is that i

101、nflation and interest rate trajectories will remain crucial for infrastructure capital flows and valuations in 2025.Amid growing uncertainty,investors will likely keep lessons learned from the 2022-23 period front-of-mind.During this time of elevated inflation and rising rates,infrastructure assets

102、with resilient,inflation-linked cash flows underpinned by structural tailwinds continued to perform well.The uplift in earnings growth in most instances compensated for the impact of rising rates on capital returns.Digital and clean energy sectors remain key areas of growth,in our view.Nuances,howev

103、er,are emerging with respect to their earnings and growth potential.Clean energyRenewable valuations and growth prospects are more subdued,coming under fresh pressure following the US election.The main concern following the election,in our view,is the prospect for higher costs pressuring new project

104、 economics for new clean energy assets in the US due to possible tariff hikes and IRA subsidy rollbacks(for more,see Aanands section).While the risks are very real,we still expect clean energy demand to be boosted significantly due to strong growth in power-intensive data centre capacity in the US.W

105、ind and solar remain among the cheapest forms of new capacity in the US and many key markets globally.Lower clean energy demand in the US could put downward pressure on wind equipment prices.In the short term,that could be seen as beneficial for European wind projects,which may benefit from lower co

106、sts.However,equipment suppliers are operating with stretched balance sheets and low margins.We believe that longer-term,sustainable cost declines will require a stable and healthy supply chain.Wind equipment manufacturers EBIT margins Source:BNEF,as at September 2024-150%-40%-30%-20%-10%0%10%20%Q1Q2

107、Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q22017201820192020202120222023 2024VestasSiemans GamesaNordex17December 2024|2025 global outlookDigital infrastructureDigital Infrastructure bucked the broader trend of falling capital flows and transaction volumes in 2024.As artificial intellige

108、nce-related(AI)growth is expected to accelerate,we expect the demand for digital infrastructure assets to remain robust in 2025.Given the hard constraints on available asset supply,we believe the demand-supply imbalance should continue supporting asset pricing and capital flows.The insatiable demand

109、 for data has driven data centre power capacity forecasts towards at least doubling by 2030.5 With record-low vacancy rates,rising construction costs,power supply constraints,and Big Tech signalling further AI infrastructure spending,data centre rental growth is expected,particularly in primary mark

110、ets.The advance of AI is also providing tailwinds to fibre,with generative AI expected to require at least 10 times more fibre connections within data centres than is traditional.6 But the AI tailwind is not without risk,in our view,with geopolitical tensions surrounding chip manufacturing becoming

111、increasingly evident and an equivalence forming between national security and data centre power capacity for AI.7,8 With the rapidly evolving landscape and concerns on cybersecurity and secure communications,we see a deglobalisation of data through the rise of data and AI sovereignty.10 This could,i

112、n our view,drive relatively greater growth of digital infrastructure in Europe.Despite EU regulations on AI,we expect the technology,as well as cloud migration and data sovereignty,to drive a strong net positive demand in Europe.Finally,we see the data centre buildout aligning with environmental,soc

113、ial and governance targets,suggesting greater regulation on power efficiency and increasing renewables developments to come,particularly in Europe.The balance between fully embracing AIs capabilities while ensuring safety,security,and adhering to climate targets will be central to the future of digi

114、tal infrastructure development,in our view.5.AI power:Expanding data center capacity to meet growing demand|McKinsey6.Corning and Lumen Reach Supply Agreement on Next-Generation Fiber-Optic Cable to Support Data Center AI Demands-Aug 1,20247.Opinion:New energy sources for AI,data centers are vital t

115、o U.S.national security-MarketWatch8.Memorandum on Advancing the United States Leadership in Artificial Intelligence;Harnessing Artificial Intelligence to Fulfill National Security Objectives;and Fostering the Safety,Security,and Trustworthiness of Artificial Intelligence|The White House9.BCG,Emergi

116、ng Resilience in the Semiconductor Supply Chain,May 202410.Considerations regarding Sovereign AI and National AI Policy,November 2024High-end chip manufacturing locationsSource:BCG9,as at May 2024010%20%30%40%50%60%70%80%USChinaTaiwanKoreaJapanEuropeOtherProportion of Chip Production20222032FThe ins

117、atiable demand for data has driven data centre power capacity forecasts towards at least doubling by 2030.18December 2024|2025 global outlookOf surpluses and spreadsSolutionsRobert Pace Senior Solutions Strategy ManagerWill Riley Head of SolutionsWe think theres much to be optimistic about for UK DB

118、 pension funds that can take their pick from buyout,run-on or both.The UK is going global in a sense.Rachel Reeves,Chancellor of the Exchequer,unveiled in her recent Mansion House speech plans to create Canadian and Australian style-megafunds to power growth in the economy.In addition to the strong

119、focus on the DC market and Local Government Pension Schemes there was also a nod to insurers,regarding investment in productive assets under the new Solvency UK regulatory regime.Defined benefit(DB)pension funds were not,however,mentioned at this stage.Therefore,it seems likely that formal feedback

120、around surplus extraction will come in 2025.Nonetheless,with DB assets of c.1.2 trillion and over a third of schemes(by value)being in surplus on a buyout basis,as at 31 March 202411,we would make three key points:1.On surplus extraction,we recognise the necessity of mutually agreeable guardrails fo

121、r sponsors and trustees,but expect there to be practical,workable solutions.We touch on these below.2.It is news to no one that traditional investment grade spreads are low versus history.But as we describe later,there is much more beneath the surface to unpick and consider.3.Delegation and how much

122、?We think the trustee governance structure must carefully consider what strategic decisions to retain and what to outsource from the new funding code,to a framework for capturing any sell off in credit spreads,to the transition of a private markets portfolio,to a buyout provider.11.The Purple Book 2

123、02419December 2024|2025 global outlookAlthough we await the finer details on surplus extraction,we already have a good idea around plausible strategy based on our long-term asset liability modelling.For an example scheme,we find that extracting surplus when the gilts funding level is greater than 11

124、0%could mean there is a 90%chance the scheme will still be fully funded in 10 years.If that funding level threshold is set at 105%,the probability may fall to 80%.At very high funding levels and thresholds for extraction,there is an increasingly strong case for allocating more to growth assets,in ou

125、r view.Spread volFor pension schemes derisking or looking for extra returns to generate surplus what to do about tight credit spreads?Pension funds are fortunate to be long-term investors who can weather mark-to-market volatility.Our research,backtested to 1973,suggests that a relatively simple buy

126、and hold credit investment is challenging to beat on a risk-adjusted basis because spreads can remain low for longer-than-expected periods,and tend to come with less risk.As such,even at lower credit spreads,we believe long-term credit investments still have their place.That said,we do find there is

127、 room to add incremental value though a more proportionate strategy which could,for example,use shorter dated credit(be that traditional investment grade,securitised or private assets)to maintain carry.Liquidity and resilienceThe new funding code is live and effective for pension fund valuations fro

128、m 22 September 2024.For their low dependency investment allocations,DB Pension funds will have to demonstrate investment strategies which are sufficiently liquid to meet cashflow requirements and highly resilient to short-term adverse changes in market conditions.Our observation is that governance s

129、tructure will be key.A delegated approach could be the way to go to meet these regulations and anything else round the corner.Finally,we think pension funds need not be wary of illiquid assets if circumstances or strategy changes and a buyout or buy-in is being executed.Private market transitions ma

130、ndates can build on similar concepts used in public market transitions whilst allowing for key differences.LGIM is able to manage these exercises under the rigour of an investment management mandate,adding value and reducing costs in the process.To sum up,there is much to be optimistic about for DB

131、pension funds that can take their pick from buyout,run-on or both.As long-term investors,DB funds are able to take a strategic approach to surplus generation and asset allocation whilst taking advantage of flexible solutions to deal with private and illiquid assets.We can support all levels of deleg

132、ation models to fit with trustee governance structure and objectives.The impact on benefit security from surplus extraction is slight if the extraction level is chosen carefully*Average proportion of liabilities across scenarios over 10 years.*Probability of still being at least 100%funded in 10 yea

133、rs.Source:LGIM calculations,June 2024.For assumptions,please see our whitepaper or get in touch.Assumptions,opinions and estimates are provided for illustrative purposes only.There is no guarantee that any forecasts made will come to pass.Benefit security*Average surplus extraction per year*100%95%9

134、0%85%80%75%70%65%60%55%0.5%0.0%1.0%1.5%2.0%2.5%3.0%Extract over 120%fundingNo extractionReducing the extraction threshold increases surplus extraction at the expense of benefit securityExtract over 115%fundingExtract over 110%fundingExtract over 105%fundingExtract over 102.5%fundingExtract over 100%

135、funding20December 2024|2025 global outlookRenewables under Trump:what to expectIndex&ETFAanand Venkatramanan Head of ETFs,EMEATranslating rhetoric into policy is complex.We believe the economics of clean power is compellingly simple.Pre-election rhetoric left little room for doubt regarding the inco

136、ming presidents view of pro-climate policies,with Trump promising to“terminate”funding for what he called the“Green New Deal”.12 In contrast,we believe the eventual impact of the Republican administration on the clean energy market will be highly nuanced.The details will matter,of course.Still,there

137、 are practical as well as political complications that could significantly blunt Trumps stated ambitions.The Inflation Reduction ActThe 2022 act has served as a potent source of capital for renewables in the US via federal investment,loans and tax credits.Its widely seen as the headline risk to rene

138、wables under the incoming government.Yet there are good reasons to believe the act may survive.The Republicans slim majority in the House will make a full repeal difficult.Yet the greatest source of resistance may come from within the party,as noted by Emiel.Its been estimated13 that 70%of manufactu

139、ring jobs created under the act are in Republican jurisdictions and 80%of new clean energy projects worth over$1 billion are in red districts14,making removal of investment potentially unpalatable.Additionally,18 House Republicans have signed a letter to the speaker stating that,“A full repeal would

140、 create a worst-case scenario where we would have spent billions of taxpayer dollars and received next to nothing in return”.15The outlook for EVsEmission requirements on new vehicles is an area where Trump can bring about change by targeting the Department of Transportations Corporate Average Fuel

141、Economy Standards and the Environmental Protection Agencys greenhouse gas emissions standards.However,there are once again complicating factors that make the eventual impact on the electric vehicle(EV)sector harder to judge.If it becomes clear that the EV tax credit is at serious risk,consumers may

142、bring forward EV purchases before the incentive expires,leading to a near-term spike in sales.Tesla*CEO Elon Musks proximity to Trump further clouds the picture.One possible scenario is that the decision to buy an EV may become increasingly depoliticised,with partisan preferences expressed by custom

143、ers choosing particular marques of EV.What to watch in the near termWhile all eyes are now on Trump,its worth remembering that the Biden administration still has a meaningful window in which to deploy funds under the current policy regime.Precedent suggests16 previously committed funding may be safe

144、 harboured when the Republicans take power.The first few months under Trump will also shed light on how much rhetoric might translate into reality.Laxer emission requirements for new cars could be enacted quickly,while the actions of Congress will provide an indication on the extent to which the Inf

145、lation Reduction Act might be repealed.The longer it takes,the more likely it will remain in one form or another.13.Source:Renewable energy growth likely to continue under Trump despite proposed wind power ban14.Source:https:/ not just Democrats.Republicans are working to Trump-proof their climate m

146、oney|CNN16.Source:Treasury,IRS extend safe harbor for renewable energy projects|Internal Revenue Service21December 2024|2025 global outlook and the long termAs the dust settles over the coming months,its worth remembering the long-term fundamentals that support the clean energy theme,which investors

147、 can access via both clean energy equities and the commodities needed to enable the transition to net zero.Beyond fluctuations in levels of policy support,the economics of clean energy is transforming how the world gets its power.Its estimated that renewable power deployed globally since 2000 has sa

148、ved$521 billion in fuel costs in the electricity sector.17Ultimately,we believe economics provides an argument for renewables that will prove increasingly difficult to oppose regardless of ideology.*Reference to a particular company and/or the securities which it issues is on a historic basis and do

149、es not mean that the security is currently held or will be held within an LGIM portfolio.The information does not constitute a recommendation to buy or sell any security.17.Source:https:/www.irena.org/News/pressreleases/2023/Aug/Renewables-Competitiveness-Accelerates-Despite-Cost-InflationWe anticip

150、ate heightened volatility in the sector as we await clarity on the new administrations plans.For tactically minded investors this could create opportunities.For investors with a longer-term mindset,we believe the transition to clean power continues to be a fundamentally compelling theme with a clear

151、 economic rationale.Levelised cost of energy by technology,WorldwideThe average cost per unit of energy generated across the lifetime of new power plant.This data is expressed in US dollars per kilowatt-hour1.It is adjusted for inflation but does not account for differences in the cost of living bet

152、ween countries.0.4$/kWhConcentrated solar powerOffshore windBioenergyGeothermalHydropowerSolar photovoltaicOnshore wind0.3$/kWh0.2$/kWh0.1$/kWh0$/kWh198419901995Data source:IRENA(2024)Note:Data is expressed in constant 2023 US$OurWorldinData.org/energy|CC BY1.Watt-hour:A watt-hour is the energy deli

153、vered by one watt of power for one hour.Since one watt is equivalent to one joule per second,a watt-hour is equivalent tp 3600 joules of energy.Metric prefixes are used for multiples of the unit,usually:-kilowatt-hours(kWh),or a thousand watt-hours.-Megawatt-hours(Mwh),or a million watt-hours.-Gigaw

154、att-hours(GWh),or a billion watt-hours.-Terwatt-hours,or a trillion watt-hours.20002005201020152023As the dust settles over the coming months,its worth remembering the long-term fundamentals that support the clean energy theme.22December 2024|2025 global outlookJust how concentrated are equity marke

155、ts?The increasing importance of a handful of US tech stocks to widely followed market-cap-weighted indices has led to rising concerns aroundconcentration risk.Market concentration can occur at different levels,including region,sector and individual securities.The North American market,for instance,h

156、as seen a significant increase in value since the Global Financial Crisis.This coincided with the growth of the technology sector,with many leading tech companies being US-based.But the primary concern today is security-level concentration,where overall market returns are increasingly being driven b

157、y the so-called Magnificent 7.This raises the question of how this type of concentration can be assessed.Read our two-part blog series on whether the US equity market does indeed qualify as concentrated,according to accepted academic standards;how it compares with other major markets;and what this m

158、eans in terms of performance,risk and fundamentals.December 2024|2025 global outlookD009224Key risksThe value of an investment and any income taken from it is not guaranteed and can go down as well as up,and the investor may get back less than the original amount invested.Important legal noticeThe v

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166、uch distribution would be contrary to local law or regulation.2024 Legal&General Investment Management Limited,authorised and regulated by the Financial Conduct Authority,No.119272.Registered in England and Wales No.02091894 with registered office at One Coleman Street,London,EC2R 5AA.LGIM GlobalUnl

167、ess otherwise stated,references herein to LGIM,we and us are meant to capture the global conglomerate that includes:European Economic Area:LGIM Managers(Europe)Limited,authorised and regulated by the Central Bank of Ireland as a UCITS management company(pursuant to European Communities(Undertakings

168、for Collective Investment in Transferable Securities)Regulations,2011(as amended)and as an alternative investment fund manager(pursuant to the European Union(Alternative Investment Fund Managers)Regulations 2013(as amended).USA:Legal&General Investment Management America,Inc.(a U.S.SEC registered in

169、vestment adviser),LGIM International Limited(a U.S.SEC registered investment adviser and U.K.FCA authorized adviser).Hong Kong:issued by Legal&General Investment Management Asia Limited which is licensed by the Securities and Futures Commission.Singapore:issued by LGIM Singapore Pte.Ltd.(Company Registration No.202231876W)which is regulated by the Monetary Authority of Singapore.The LGIM Stewardship Team acts on behalf of all such locally authorized entities.Contact usFor further information about LGIM,please visit or contact your usual LGIM representative