Global Asset Allocation Perspectives

January 2025

To help guide the positioning of Scotia Portfolio Solutions, the Multi Asset Management team of Scotia Global Asset Management meets regularly to discuss and debate the current macro environment and what it means for portfolio positioning. The following report captures the team’s current views.

Key macroeconomic themes

Global economic themes that are most likely to influence our views on portfolio asset allocation over the next 12-to-18 months.

Global growth is expected to be stable but slow

U.S. growth is expected to lead the way due to steady consumer spending, stable employment and lower inflation. Despite continued easing, European growth is expected to remain low. Chinese stimulus may lead to an upward growth revision.

More modestly paced rate cuts are coming

Rate cuts are likely to continue but will need to coincide with further declines in inflation. Easing supply challenges have helped to bring inflation lower. More time or a shaper slowdown is required to bring inflation to more sustainable levels.

Risk and uncertainty remain

Markets remain richly priced with high concentration and lofty valuations. Combined with uncertainty stemming from proposed U.S. policy, ongoing geopolitical tensions, increasing polarization, these represent the major sources of risk and uncertainty facing markets at this time.

Asset allocation perspectives

Equities

We have a modest overweight view on equities overall relative to fixed income.

Sentiment remains positive in the U.S. as economic growth and labour markets continue to beat expectations. Pro-business policy changes in the U.S. could further bolster growth, even as tariff threats dampen excitement in other markets.

If a recession can be avoided, then equities should grind higher and outperform fixed income, despite lofty valuations, especially if rates remain higher for longer. Artificial intelligence (AI) related investments will likely continue to support a large proportion of cap-weighted indices.

Fixed income

We have a modest underweight view on fixed income overall relative to equities as the global economy stabilizes and recession risks continue to recede. While inflation concerns linger, Canadian and U.S. inflation is mostly in-line with long-term targets.

Bond yields remain attractive at this time, both from an income and capital appreciation perspective. However, recent firmer inflation prints in the U.S. and the fear of potentially inflationary policy (tax cuts and tariffs) has driven yields back up.

While the global central bank easing cycle has begun in earnest, concerns outlined above may dampen further rate cuts in the U.S.

Canada

We have a modest overweight view on Canadian equities. The Bank of Canada has provided considerable easing to the economy and the upcoming Federal election should result in a more growth-focused direction supported by pro-business policy. Canadian equities remain attractively priced, especially relative to U.S. equities and the Canadian dollar remains weak relative to USD. Potential tariffs remain a risk.

U.S.

We have an overweight view on U.S. equities. Economic growth in the U.S. remains resilient and the new Trump administration is focused on business-friendly, pro-growth policies coupled with the desire to cut interest rates, taxes, regulation and the overall size of the Federal government. Despite stretched valuations, U.S. markets remain best positioned to benefit from the AI secular trend.

International

We continue to have an underweight view on international equities. Europe continues to face structural headwinds affecting its global competitiveness. Rising protectionism in the U.S. and China shifting from customer to competitor are added headwinds. Outside of Europe, we have a neutral stance in markets such as Japan and Australi

Emerging Markets

We maintain our neutral view on emerging market equities. China still faces structural challenges related to its property sector, broad deleveraging, and tensions with the U.S. While stimulus uncertainty remains, Chinese policymakers are expected to roll out support for its struggling economy. In other emerging markets, compelling valuations are offset by risks to global trade, keeping us neutral overall.

For further information, download the full Global Asset Allocation Perspectives Report.

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As of December 31, 2024.

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