10 Jan 2025

Long-Term Investment Strategies for 2025

Welcome to our weekly newsletter, where we summarise market activity over the past seven days.

Market Weekly

Long-Term Investment Strategies for 2025

As the new year begins, it is a good time to be reviewing your current investment situation and goals for the year and beyond.

Investors would do well to maintain focus on their long term financial goals and be reminded to not be too concerned about the inevitable bumps in the road they may encounter along the way. As the saying goes, you win some, you lose some. This is never more appropriate than in the world of investments!

We observe some investors wanting to take on more risk when investments are going up and tend to panic and sell as soon as markets drop. However, consistently timing the market by selling investments “at the top” and rebuying “at the bottom” of a market dip, is extremely tricky to do. We believe investors should have a long-term timeframe and ride out any short term noise with any small tactical decisions left to experienced professional investment managers.

Hindsight is a wonderful thing, but not something available to you when making investment decisions. To demonstrate this, in the chart below we show global equity performance over the past five years with three turning points highlighted by dotted lines. If you put yourself in the shoes of an investor at any of those three points in time, you may have been feeling particularly positive (line 2) or negative (1 and 3) without knowing what was to come around the corner. In good years, it is key to remain grounded and not get carried away by short term success. And in bad years, it is key to remember they are inevitable but there may be signs of positivity around the corner. Investors are more likely to be successful by sticking to the long term plan rather than making rash short term decisions.

Diversifying your portfolio (the concept of not putting all your eggs into one basket) can also help. Diversification can be via asset class (e.g. bonds, equities, real estate), sectors (e.g. financials, technology, healthcare) and geographies (e.g. UK, US, Emerging Markets). The idea being that not all of your investments will fall at the same time which in turn protects your portfolio value.

By embracing the above principles, investors can position their portfolios for success over the year and better navigate the uncertain nature of the market in order to achieve their long-term investment goals.

The Noise

UK long-term borrowing costs hit their highest level in 27 years this week, as the 30-year gilt yield (which moves inversely to prices) touched 5.25% on Tuesday – close to levels seen after Liz Truss’s ‘mini-budget’ in 2022. The UK 10-year borrowing costs have also hit their highest level since the global financial crisis in 2008, with its yield climbing to 4.8%. Due to these high yields, there has been a UK gilt sell-off, which could reduce current Chancellor Rachel Reeves’ fiscal headroom. Economists have expanded on this and say that if the recent hikes in interest costs are sustained, it could erase the extra space for government borrowing created by the Chancellor’s latest budget. This sell off is driven in part by recent budget fallout and fears that US president-elect Donald Trump’s tariff plans will upwardly-adjust the inflationary path, with inflation already above the Bank of England’s target. Markets reacted to these figures, with Sterling falling c.1% against the US dollar this week, its lowest exchange rate since 2023.
China’s on shore currency, the renminbi (Rmb), has weakened to its lowest level in 16-months, falling 0.1% to Rmb 7.33 against the US dollar on Wednesday. Downward pressure on the Rmb grew after strong US economic data drove up the dollar on Tuesday. Selling the renminbi reflects trades investors are making in anticipation of Trump’s inauguration, and the much-anticipated trade tariffs he has promised to impose on China. It is not just currency feeling this pre-Trump pinch, equities have also fallen with Chinese and Hong Kong markets shedding around 3% this week.
US President elect Donald Trump has threatened to buy Greenland, a Danish territory this week, as if it is an Arctic mergers and acquisitions (M&A) deal. The businessman-cum-politician is set to start his second term as President later this month, and these threats are a preview of the potential turbulence we are in for. Markets have largely priced in his proposed tariffs and are preparing for the possibility that US inflation could rise again, with US stocks sliding slightly this week. Yet this threat sparked discussion of the President-elect destabilising international relations with Europe, who are already worried about his policies, specifically trade tariffs and the dwindling Electric Vehicle (EV) market impacting their economies.

The Nuance

Recently, the impacts of climate change on the wine industry have come into the spotlight. With temperatures increasing worldwide, and water deficits more frequent, the environment for wine production is changing. So, how are European wine giants adapting, and how will that impact their national economies?

The best conditions for wine production involve an average temperature of 12-22 degrees celsius to grow grapes. Different grapes bloom at different times depending on their variety, so the mild season of autumn allows for all the grapes to accumulate sugars and tannins. Without enough time in this mild weather, they would lack flavour, and too much heat would leave the grapes too syrupy.

In Chateauneuf-du-Pape, an acclaimed wine region in France, they had a 3-degree Celsius rise in temperature, from the flowering to the harvesting of the grapes relative to historic norms. Europe used to have climatic stability, allowing for the French, Italian and Spanish to rule the wine world. With changing temperatures and the seasons shifting this is an evident problem for wine production. Whilst we won’t be waving goodbye to our French Bordeaux wines just yet, climate change is already having a tangible impact on the wine industry. In response many are replanting grapes at higher altitudes where possible, to maintain cooler temperatures.

A study, at New York University found that climate change is likely to produce both economic winners and losers, with the winners being those located in cooler regions. They also identified that there could be some substantial short-run costs as growers adapt to climate change, which could be passed on to consumers in wine prices.

As a result, Europe’s wine map may be redrawn, which we can already see hints of with the likes of Denmark and England hailing newfound praise in the wine world. Though in a commercial sense, it is still very early days for more northern wines.

The competition isn’t having an economic impact for now, rather an Italian wine maker, Frescobaldi, said it rather pushes them to make better wine. Though it is important to consider that if wine becomes too challenging to grow in these regions, the economies of wine giants like France and Italy could be negatively impacted. After all, centuries of experience are no advantage when climate change rewrites the rules of the game.

The Niche

A fun financial markets fact of the week

You may have heard investors referencing a bear or bull market. These zoomorphic descriptions originated from the Caballero’s pitting bears and bulls against each other in public fights during the 19th century in California. They noticed that bears swiped downwards, and bulls swiped upwards in their attack. These movements influence how we now describe market movements with bullish rally referencing an upwards trajectory and a bareish market referencing a downward trajectory.

The value of investments and any income from them can fall and you may get back less than you invested.