What are the big risks for investors in 2025? Investment managers reveal their predictions

Uncertainty about what 2025 will hold for investors is widespread as the new year begins.

Donald Trump is preparing to take over the US presidency after his resounding election victory in November, heralding the possibility of increased tensions with China.

Concerns also persist over inflation and a U.S. stock sector that is heavily tied to the fortunes of Big Tech.

In the latest edition of its quarterly Market Sentiment Survey, investment consultancy Asset Risk Consultants asked 98 investment managers what they thought were the biggest risks facing investors this year.

One of the main fears highlighted by CIOs was the likelihood of a trade war between China and the United States under a second Trump administration.

The United States will increase trade tariffs on China

With the new president’s inauguration due to take place later this month, there are fears that the United States may be on track to expand trade tariffs.

While they are expected to affect several countries, with Canada and Mexico expected to face 25 percent tariffs, the bulk of the new tariffs could be placed on goods coming from China.

Trump has pledged to add an additional 10 percent to the new tariffs. According to Reuters, the average tariff that experts predict will be applied to Chinese goods is 38 percent.

German Central Bank President Joachim Nagel previously said: “Currently, the biggest source of uncertainty for the forecast is a possible global rise in protectionism.”

If Trump institutes these policies as expected, there will almost certainly be retaliatory measures from China and possibly other affected countries.

James Cooke, Deputy CIO at ARC, said: ‘The reality is that many of the risks are interrelated.

“Trade wars combined with a China slowdown could raise tensions in Taiwan, raising fears about advanced node semiconductor manufacturing, which in turn would affect many of the Magnificent Seven.”

Stocks dominated by big tech

This leads to the second major concern that investors face. Stock markets in the United States are dominated by a select few companies, largely made up of the Magnificent Seven: Amazon, Apple, Tesla, Microsoft, Meta, Alphabet and, of course, Nvidia.

The latter has gone from strength to strength in 2024, having gained a staggering 185 percent since the start of the year.

Nvidia shares are trading at $134.29 each on Jan. 2, and the chipmaker alone makes up more than six percent of the S&P 500 index.

Together, the Magnificent Seven represent about a third of the index’s value. In 2024, this meant the S&P 500 grew by almost 25 per cent, compared to the paltry five per cent growth seen by the FTSE 100.

However, this also means that the fortunes of the dominant US index are tied with those of just seven companies, and if the AI ​​bubble bursts, that fortunes could change quickly.

Despite this, the ARC survey showed that net sentiment towards the stock has risen to 56 percent, from 21 percent in the last 12 months.

However, sentiment towards European and British stocks has declined, while bonds have also lost popularity.

Inflation has not disappeared

Another area of ​​concern among CIOs is the prospect of greater inflationary pressures on economies, possibly leading to a slower reduction in interest rates.

Cooke said: “An excessive rise in inflation could force central banks to tighten monetary policy more aggressively and the money supply is a significant detriment to risk asset returns.”

He added: “The good thing is that there is still plenty of money in money market or ‘dry powder’ funds.

‘We wouldn’t be too surprised to find that 2025 is a year of greater “animal spirit” and greater M&A activity, which tends to be generally good for share prices, particularly of slightly smaller companies.

“Perhaps this means we will actually see the broadening of equity markets that many managers were talking about this time last year.”