VanEck weighs in on “unpredictable” 2025

Australian exchange traded fund (ETF) specialist manager, VanEck, has warned investors to approach ongoing market optimism with caution, as several challenges on the horizon indicate not all is “priced to perfection”.

Markets in 2024 were undeniably shaped and formed by the speculation prior to and outcome of the US Presidential election, with US equity markets rallying around the perceived “more pro-business candidate” and international equity markets soaring off the back of the US.

Trump’s support for digital currency saw risky investments like cryptocurrency break through barriers, as Bitcoin surpassed the US$100,00 milestone in December last year. At the other end of the risk spectrum traditional “safe haven assets” such as gold also enjoyed a strong, record-breaking year, speaking to the whirlwind of volatility and uncertainty that has defined the last 12-month period.

Despite such strong results the ETF firm has taken a more cautious route, as US markets currently “bubbling over with exuberance” could suffer the consequences of longstanding geopolitical tensions and other factors such as “macro imbalances”.

“Markets are riding high coming into 2025. International equities have had a strong run, with IT, communication services and consumer discretionary – all seen as beneficiaries of the incoming Trump administration – among the best-returning sectors for the quarter,” VanEck Asia Pacific CEO and Managing Director, Arian Neiron, said.

“The gold price has continued to defy expectations, and bitcoin broke the US$100,000 barrier. In Australian equities, the banks have driven share market returns, led by CBA’s staggering rally.

“US markets are exceedingly buoyant. Equities are roaring, complacency has crept into bonds, and credit spreads aren’t reflecting current market risks. This exuberance is precisely why investors are wise to tread carefully.

“There is considerable uncertainty over the direction global markets will take following the imminent Trump presidency, and there are several other factors that could cause volatility, such as escalating US debt, heightened geopolitical risk and rising trade tensions.”

“President-elect Trump pulled off a stunning victory. He won the popular vote and the Republicans control both houses of Congress, the Senate and the House of Representatives. He will enter the highest office in the US with a mandate to implement many of the plans he campaigned on. And yet, plenty of pundits continue to believe he’ll step back from some or most of his declared policies. Trump, we think will not be stepping back – and some of these could present some risks to the US economy,” VanEck’s outlook said.

“The first policy issue is fiscal: while markets are applauding the expected renewal and extension of expiring corporate tax breaks, there is no significant offset for the lost revenue. Wharton Business School estimates that Trump’s fiscal proposals will blow out the budget deficit by a further US$600 billion a year over the next decade, or around 2% of US GDP per year.

“With a budget deficit already running near 7% of GDP, in an economy not far from full employment, this is unsustainable. First, it will result in an overheating economy, forcing the Fed to hike rates; in turn, this will force the US dollar higher, reducing competitiveness. This could lead to making it hard to “bring manufacturing and jobs” home to the US.”

VanEck’s outlook also highlighted gold miners as an underappreciated opportunity for investors in 2025 to protect against broader market risk through gold exposure.

“Investors who are fully cognisant of prevailing market conditions will find ample opportunity in 2025. With the Fed well into its easing cycle and the market expecting the RBA to start easing in 2025, long-duration assets may be the place to be,” Neiron said.

“Emerging markets are offering strong relative fundamentals and a greater risk premia. We think gold still has strong upside potential, and gold miners – which may be among the few equities not priced to perfection – could outperform the yellow metal through 2025.”

“The poor sentiment towards the gold mining sector and the lack of investor interest, is evident in the way the gold stocks trade in a rising versus a declining gold price period. Leverage works both ways, and we emphasise this every time we highlight the merits of investing in gold stocks.

“A move in the gold price, generally corresponds to a more meaningful move in the cash margins realised by the miners, thus their operating leverage to the gold price. However, in recent years, it seems like the market implied leverage of gold stocks to the gold price when the metal price is rising is lower than the implied leverage when the price drops.

“We have been anecdotally making this observation, frustrated by the overly punitive impact this continues to have on the already oversold gold shares. We think this dichotomy represents a value opportunity for gold miners as they have been potentially oversold when the price of gold falls and under-bought when the gold price has been appreciating.

“The significant gap between gold and gold equities had been narrowing over the last year, but the post-election weakness in the gold sector has widened it once again. With gold producers enjoying record margins, leading to record free cash flow generation, we expect this disconnect won’t last forever.”