This run will have “material implications” for financial markets, the asset manager noted.
State Street Global Advisors (SSGA) quantified the technology positions of major blocs using data from the Australian Strategic Policy Institute’s Critical Technology Tracker. The analysis assigned a cumulative quantitative score in eight categories, comparing the “two main antagonists,” the United States and China.
“In a direct bilateral comparison, China is well ahead of the United States in all eight areas,” the SSGA said in its report. Global Market Outlook 2025: Finding the Right Path.
However, he stressed that the outlook “changes dramatically” when U.S. allies in Europe and the Asia-Pacific are considered. In this context, China is leading in two areas: renewable energy and advanced materials, SSGA added.
The Critical Technology Tracker monitors research levels in eight areas: detection, timing and navigation; quantum, energy and environment; defence, space, robotics and transport; biotechnology, genetic technologies and vaccines; advanced materials and manufacturing; advanced materials and manufacturing; advanced information and communication technologies and AI technologies.
SSGA also noted that modern technologies are “profoundly different”, representing a “technological leap” rather than an innovation, and that some technological advantages could become entrenched.
“This global competition may take place in research laboratories, but it plays out in the global circuits that feed the industrial and technological complex. These battles have important implications for financial markets,” the asset manager said.
The three main areas of competition have been identified as real (military) wars, trade wars and tax “wars”.
“While either area may remain quiet for some time, the fundamental drivers of increased friction remain intact and are unlikely to dissipate in 2025,” it says.
Macroeconomic Outlook
SSGA presented its macroeconomic outlook, forecasting continued rate cuts and economic resilience in 2025, and reaffirmed its long-standing prediction of a soft landing in the United States.
Looking ahead to 2024, the asset manager noted that equity markets delivered strong returns in a resilient environment, while major central banks embarked on an easing cycle.
The cycle of rate cuts is expected to continue “for some time to come,” although the Trump-led Republican election victory in the United States could lead to a change in narrative at the end of 2025.
Additionally, according to SSGA, investors will need to contend with both near-term uncertainties and deeper structural changes such as demographic shifts, geoeconomic fragmentation and the rise of transformative technologies.
Within global equity markets, the resilient economic environment is supporting earnings, particularly in the United States. Outside the United States, the situation will be “more nuanced, but there are pockets of opportunity in all markets.”
With Japanese stocks expected to face potential volatility and Chinese stocks struggling to maintain higher growth and strong performance, SSGA believes that U.S. large caps will maintain a structural advantage over the rest of developed market stocks.
Meanwhile, in emerging markets, investors will need to balance economic and earnings growth as well as inflationary pressures against geopolitical risk and a strong dollar.
“As we enter 2025, we remain cautiously optimistic, with expectations of a soft landing in the United States appearing poised to materialize,” said Lori Heinel, global chief investment officer.
“While there are a range of uncertainties to manage, investors may want to consider equity allocations above their target and should remain careful in constructing their portfolio. »
Investors should also look beyond the traditional 60/40 balanced portfolio and consider alternative exposures from the perspective of diversification, risk mitigation and alpha generation.
According to SSGA’s outlook, private equity, private credit, real estate and infrastructure bring non-traditional elements to the traditional asset mix, while offering higher returns, lower volatility and potential improved portfolio diversification.
“Investment opportunities in private markets are vast, attractive and growing. Since investment information in private markets is not as widely available as in public markets, there is an opportunity to take advantage of more widespread market inefficiencies,” the asset manager said.
“Yet, as the solutions and products are not publicly traded, illiquidity must also be an important factor in portfolio construction, and a long-term perspective and careful manager selection are essential. »
Separately, the company highlighted the emergence of the Gulf Cooperation Council region as an investment location deserving greater consideration, as well as the disruptive power of transformative technologies such as generative AI and tokenization .
