Monthly House View – April 2025: New Equilibrium

Hans Bevers - Chief Economist

Our changing world demands substantial investment from both governments and private investors. The International Monetary Fund underscores this need in every report.

The Monthly House View now replaces your trusted Monthly Market News. The extensive market analysis will now appear monthly and is a collaboration between the experts of Bank Degroof Petercam and Indosuez Wealth Management.

Investment is essential to modernize infrastructure, meet rising demands in transport, energy, and communications, and develop practical applications for cutting-edge technology, particularly artificial intelligence (AI). It also plays a crucial role in advancing sustainability, driving the energy transition, and reducing reliance on fossil fuels.

Republican shift

In recent years, the Biden administration made significant public investments to boost the economy and support advanced technology. Key initiatives included the ‘Chips Act,’ which allocated $50 billion for semiconductor manufacturing, and the ‘Inflation Reduction Act,’ which earmarked between $400 billion and $1 trillion for sustainable technology.

With the Republican administration now in power, the focus has shifted towards private investment. The Republican approach moves away from public spending and subsidies, instead encouraging private-sector initiatives, preferably within the U.S. (a strategy known as ‘reshoring’).

Tariff barriers

The Trump administration has opted for a protectionist trade policy. However, this choice carries risks: mobilizing private capital by imposing tariff barriers is no easy task. Additionally, the inherent risks make it a precarious strategy.

In his article, Lucas Meric describes the short-term adverse effects we can expect on growth and inflation. The risk reassessment caused turmoil in the US stock markets, further exacerbated by the aggressive positioning of institutional, private, and speculative investors in favor of US equities at the end of 2024.

Europe’s revival

Meanwhile, Europe has embraced public investment. Germany recently unveiled a €500 billion, 10-year plan to modernize infrastructure and accelerate the energy transition.

This shift is partly a response to the new U.S. administration’s stance on security commitments, prompting Europe to take a more assertive role in ensuring its economic and defense independence. Bénédicte Kukla explores the implications for European growth.

Baseline scenario remains intact

In response to these developments, we have made adjustments to create a new balance in our investment portfolios. We have increased the weighting of European equities and decreased that of American equities. The new public investments in Europe could act as a catalyst to narrow the historically high valuation gap between European and American stock markets.

This does not mean that we are losing structural confidence in the American stock market. It is even possible that the recent decline has been an overestimation of the impact. Although uncertainty is clearly increasing and risks are tilted to the downside, the baseline scenario remains that economic activity in America will continue (albeit less convincingly).

Diversification matters

The events between mid-February and mid-March have prompted a reassessment of risks on both sides of the Atlantic. The allocation table at the bottom of this article reflects our positioning across various asset classes in our wealth management strategy. We place great importance on diversification, and our portfolios are well diversified. For this reason, we continue to invest in dollars and gold. A diversified strategy is likely the best defense against volatile markets, and it also allows us to seize opportunities that arise in these changing times.