Profound acceleration in the new global order: Perspectives 2025

2024 was shaped by significant global events. Over the last couple of years in Perspectives, we have been highlighting that the world has fundamentally changed, driven by several important pillars:

• The technology war between the US and China continuing to accentuate,
• The irreversible move from globalisation to localisation,
• The cost of money normalising, bringing more fundamental discipline to investing, and
• Social fabrics changing, impacting politics and making geopolitics a powerful force.

In the new regime we are in, decisions can no longer be made based on general politics and policies. It is also about security, certainty and industry viability.

To exploit the opportunities arising from turbulence ahead, three principles need to be considered:

1. Moderate our return expectations of select asset classes that have over-delivered in a lower interest rate environment
2. Evolve our thinking on where we anticipate attractive medium-term return potential, in market segments such as alternative lending, divergence-based trading strategies, equity sector opportunities arising from dislocation in the US and Asia, and enablers of the increasing demands on digital and other infrastructure
3. Embrace strategies that offer genuinely uncorrelated drivers of returns to broad equity and credit markets, as they will have an increasingly valuable place in portfolios going forward.

We believe that volatility will be real feature of the global landscape ahead. We see that as a friend, not a foe.

Re-imagining the future architecture of global supply chains

Global supply chains must be rewired in a material way given the policies of today. It is not inconceivable that major economies will start labelling specific sectors such as defence, technology, pharmaceuticals, energy and minerals as mission critical. It is possible that major economic blocks will force at least 50% local production and supply in those major sectors. The task of achieving this involves a horizon of five to 10 years and may result in long-term inflation effects. This creates opportunity in enabling sectors such as technology and industrials.

An investment roadmap for tariff management

The strategic importance of domestic industries and service sectors cannot be underestimated as a source of better investment opportunities. Key for businesses is certainty on the level of tariffs to enable them to adjust accordingly. Tariffs will be particularly challenging for businesses that have production supply chains crossing different borders, whilst those that produce locally will be at an advantage. For many countries, tariffs are going to be a catalyst for much needed reform and change. There are also negative implications for small economies that rely heavily on trade. However, largely domestic-oriented economies within Asia and US sector beneficiaries of supply chain re-orientation, for example, offer opportunity on the back of ongoing market turbulence. 

With change and uncertainty comes turbulence, but also opportunity. Overall, we believe consolidation and corporate restructuring are the bedrock of one of the most ignored opportunities in global equity markets going forward.

Currencies and commodities: major battlegrounds and opportunities

We continue to expect that country level divergences will emerge based on factors such as innovation, debt levels, elasticity to energy and interest rates. For countries that are beyond the peak in their investment cycle and have unproductively high levels of debt, we expect their currencies will become an effective monetary tool for easing conditions, as their challenges are structural.

Compared to prior years, we see the Australian Dollar (AUD) trading in a slightly lower range over the medium-term with low economic momentum and reduced government spending later this year. This comes at a time of rising sensitivity to US-China trade tensions, that we expect will manifest through lower activity and volatile commodity prices due to global tariff effects.

Since 2010, various financial crises have provoked an increase in central banks buying of gold, and in this regime, they are buying gold at the fastest pace in 55 years. Higher gold prices are a source of opportunity in equity markets including through increased merger and acquisition activity. However, we expect a gradual price ascent from here as higher prices are an impediment to central banks accelerating their strategic buying of gold, given their preference for buying on a rolling basis.

In an environment of geopolitical tensions, there is a trend to attempt to moderately diversify trade and currency reserves from the US Dollar (USD), giving choice to transact in other currencies. Countries such as India and Saudi Aradia have started to execute trade without the USD. We expect to hear more about this in 2025, however this does not diminish from the USD’s pre-eminent reserve status.

The evolutionary path of global bond and credit markets

For far too long, the correct yield premium for bond yields has been incorrectly priced. Investors should be demanding higher long-dated bond yields in response to:

• high and (in some cases) rising government debt in many countries,
• inflation stabilising at higher than historic norms,
• lower tax rates (increasing borrowing needs), and
• Japan (as the largest buyer of offshore bonds) in retrenchment mode to its domestic bond markets, as interest rates in Japan are gradually rising.

Concerns over fiscal discipline are not restricted to the US, with UK bond yields pushed to their highest levels since 2008. This is an anchor that guides opportunity, which we expect markets to be more attentive to going forward. With that, we anticipate a progressive return to positively sloped yield curves in several countries.

Infrastructure and energy transition

We are in the early part of an expanded infrastructure revolution, with growing demands based on modernisation, deglobalisation, digitisation and decarbonisation. In Australia, the government has maintained active investment in transport infrastructure, with commitment for meaningful investment in energy transition.

However, given the world’s focus on Generative AI (GenAI), it is important to appreciate that these infrastructure needs are not confused with the markets’ focus on additional power and infrastructure investment arising from the deployment of GenAI. Data generation has been doubling every three years. Between 2010 and 2025, data created, consumed and stored has increased over 100 times, with all such data requiring storage and processing.

Energy transition in Australia is underway, however is slower than needed. We believe the largest threat to our national development, aside from much-needed reform, is our country’s vulnerability to higher energy prices and insufficient increase in energy supply. It is therefore no surprise that Australian corporates are continuing to secure long-term power purchase contracts at record breaking rates. Given that, we expect large-scale operational and in-development renewable assets to become more strategically valuable over time.

Technological progress: exceptionally nuanced, with winners and losers to emerge at speed

We believe that 2025 will be the most nuanced investment prism for sectors, businesses and themes globally, including the technology sector.

In the semiconductor sector, we expect significant business model differentiation, not only due to the speed of technological change that will separate leaders from laggards, but also due to the US-led tariff era. This will embolden China to push towards a goal of 70% domestic semiconductor self-sufficiency over the next few years.

The neutrality that has worked to date with global technology businesses as a safe haven will not endure in this era. With tariffs levied on foreign production of computer chips and semiconductors, we now favour domestic technology champions largely serving their domestic markets in both the US and China.

As the proliferation of GenAI takes shape, we expect that this innovation cycle can last for close to ten years, and within this cycle we will witness a multi-dimensional opportunity set due to its impact on business models across many industries. Analogous to the development of the internet, we believe the opportunity will shift from those developing the infrastructure to those using it. As a result, we see long opportunities in companies that are innovation leaders and shorting opportunities around people-based and cost-plus businesses that face increased competition, consolidation and deflationary impacts from AI. Lastly, while the world is today debating the long-term return-on-investment merits of machine-learning and GenAI for businesses across many industries, our focus on its unquestionable benefits to scientific innovation, human lives and the overall global healthcare sector is unwavering.

This article references Perspectives – an annual research publication assessing global market events and identifying key investment themes. It is produced for clients of Westpac Private Bank’s Global Investment Services. To learn more or access the full publication, contact your Private Banker or visit westpac.com.au/gis.

About the author  

George Toubia is Chief Investment Officer for Global Investment Services within Westpac Private Bank. George identifies themes in global markets that are empowered by structural drivers, seeking to uncover the investment opportunities and beneficiaries of those themes before they become widely recognised. He also leads a team of investment analysts who together form the Private Wealth Investment Team. He is responsible for sharing insights and actionable investment ideas with wholesale and sophisticated high net worth clients of Westpac Private Bank.