- We think China government bonds can have another year of gains.
- Trades around BoJ’s rate increases will remain in play.
- We are short THB, given tariff threat and rate differentials.
- We are long KRW, expecting political uncertainties to dissipate eventually.
- This is our last weekly of the year. Happy holidays to our readers!
Related Insights
- Macro Insights Weekly: Notes from UK/Europe09 Dec 2024
- Macro Insights Weekly: Resilient Singapore02 Dec 2024
- Macro Insights Weekly: “Melt-up risks”25 Nov 2024
Commentary: Top trade ideas for 2025
Key financial markets are ending 2024 with stellar returns. S&P500 is on course to mark a first in this century—two consecutive years of 20%+ returns. Corporate credit spreads, both in emerging and developed markets, high-yield and investment grades spaces, have narrowed to record territories. Despite high USD rates, debt funds have done well worldwide. Gold and cryptos have hit all-time highs. The year is ending with some rise in bank funding costs, but systemwide liquidity is ample in the global financial system. Those with exposures to financial markets have seen their net worth rise substantially this year.
With such a run-up in asset prices, is there any juice left for 2025? Haven’t the markets already priced in no-landing, deregulation, tax cuts, easy or stable monetary conditions on the upside and tariffs and geopolitical uncertainty on the downside? In fact, isn’t the recent rally already in expectations of a market-friendly 2025? Which trades make sense in the that context? Below we summarise our strategists’ favourite trades for the coming year:
Long China fixed income. One of the top fixed income govvies trade of 2024, we see further rally next year. The Chinese authorities are likely to continue to implement fiscal and monetary support measures next year, in our view. We will track cuts in the prime lending rate to support the housing sector, which in turn would add conviction to our constructive call on China Government Bonds.
Relative value between HKD and USD rates. We think the spread between HKD and USD rates will narrow next year, even if the Fed runs out of rate cut room in early 2025.
5Y/30Y UST steepener. Contrary to the assertions of spending cuts by incoming Trump administration officials, we think the markets would struggle to absorb long-term bonds issued by the US treasury. Demand for greater premium for the ultra-long tenors would make this trade work, in our view.
Pay 5Y JPY OIS. Tightening from the BOJ is still intact amidst yen weakness and persistent inflation.
Short CHF against JPY. Japan’s policy rate is set to rise above its Swiss counterpart in the first quarter of 2025.
Long USD against THB. The baht has two headwinds in the coming year--tariffs and the negative bond yield differentials against the US.
Long won against the USD. We think the won is likely to recover in 2025 as ongoing uncertainty around presidential politics dissipates.
Short Euro. With political and economic uncertainties mounting in Germany and France, we remain bearish.
From a trading perspective, we see 2025 as a year of two parts; the first part, carrying on with the current market momentum, consists of the Trump trades. Post-inauguration, once the sugar-rush from the melt-up scenario comes off as of the internal inconsistencies of the Trump model appear to the fore, there will be a wide range of tactical opportunities to trade. Don’t fight the Trump trades now, but don’t linger with them for too long either. Something to ponder in the new year!
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Related Insights
- Macro Insights Weekly: Notes from UK/Europe09 Dec 2024
- Macro Insights Weekly: Resilient Singapore02 Dec 2024
- Macro Insights Weekly: “Melt-up risks”25 Nov 2024
Related Insights
- Macro Insights Weekly: Notes from UK/Europe09 Dec 2024
- Macro Insights Weekly: Resilient Singapore02 Dec 2024
- Macro Insights Weekly: “Melt-up risks”25 Nov 2024