Thoughts on the Market: Four Key Investment Themes for 2025

Published on January 15, 2025, by Morgan Stanley

In the January 15, 2025 episode of Thoughts on the Market, Morgan Stanley's Michael Zezas, Global Head of Fixed Income and Public Policy Research, delves into the four pivotal investment megatrends poised to shape the landscape in 2025. This comprehensive analysis provides investors with valuable insights into long-term opportunities amidst a dynamic global environment.

1. Rewiring of the Global Economy: A Multipolar World

Timestamp: [00:00]

Zezas reintroduces the theme of the rewiring of global commerce, emphasizing its resurgence after a hiatus in 2024. He explains that global policymakers are actively dismantling the post-Cold War globalization framework, steering towards national and economic security through reduced open commerce and increased local control over supply chains and critical technologies.

"Policymakers are keen to promote their visions of national and economic security through less open commerce and more local control of supply chains and key technologies." ([00:45])

This shift necessitates that multinational corporations and sovereign entities adapt swiftly to the new realities. Zezas highlights the importance for investors to discern which companies will benefit from this transition and which may face challenges, underlining the critical nature of strategic adaptability in this evolving environment.

2. Longevity: Societal and Economic Impacts

Timestamp: [01:30]

The second megatrend, Longevity, remains a steadfast long-term secular trend. Zezas focuses on the tangible impacts of an aging population on governments, economies, and corporations in 2025. Key areas of investor attention include:

• Healthcare Innovation: Particularly in an AI-driven landscape, with obesity medications remaining a focal point.

  "Innovation across healthcare, especially in an AI world with obesity medications remaining front and center." ([01:50])

• Consumer Behavior: The increasing demand for affordable nutrition as populations age.

• Workforce Reskilling: Adapting aging workforces, especially in contexts where retirement ages are extended.

• Financial Planning and Retirement: The emergence of a bull market for financial advice as individuals navigate prolonged financial planning needs.

These dimensions collectively influence market dynamics, presenting both challenges and opportunities for investment strategies centered around longevity.

3. The Future of Energy: Beyond Decarbonization

Timestamp: [02:40]

Shifting focus from the previous emphasis on decarbonization, Zezas outlines the broader factors driving energy supply, demand, and delivery. The Future of Energy theme for 2025 encompasses four critical dynamics:

1. Energy Security: Heightened focus due to the complexities of a multipolar world.

   "An increasing focus on energy security." ([03:10])

2. Energy Demand Growth: Fueled by substantial investments in AI infrastructure, necessitating both fossil fuels and renewable energy sources.

3. Innovative Energy Technologies: Including carbon capture, energy storage, nuclear power, and power grid optimization.

4. Increased Electrification: Across various industries, driving demand for reliable and sustainable energy solutions.

Zezas asserts that carbon emissions are likely to surpass the targets set by national climate pledges, prompting a strategic pivot toward climate adaptation and resilience technologies. This evolution opens avenues for investments in technologies and business models that enhance environmental sustainability and energy reliability.

4. Artificial Intelligence and Tech Diffusion: From Infrastructure to Application

Timestamp: [03:50]

The final megatrend centers on Artificial Intelligence (AI) and its diffusion across sectors and geographies. Despite two years since the launch of ChatGPT, Zezas notes that AI's integration into various industries is still in its infancy. He contrasts the focus of 2024 on AI enablers and infrastructure companies with the anticipated 2025 emphasis on early AI downstream use cases that drive efficiency and market share.

"Agentic AI will be center stage with robust enterprise adoption, stock outperformance for early adopters, positive surprises in model capabilities, greater breadth of monetization, and thus less attention to return on investment debates." ([04:20])

Zezas emphasizes the importance of understanding the rate of change in AI adoption as a source of alpha for investors. Early adopters are expected to outperform, and advancements in AI capabilities will broaden monetization opportunities, diminishing concerns over return on investment.

Interconnectedness of Megatrends

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Concluding the discussion, Zezas highlights the interconnected nature of these megatrends, illustrating how they collectively form a roadmap for long-term investing:

• Multipolar World and Energy Security: The complexity of a multipolar global economy heightens the importance of energy security.

• Energy Demand and AI: The surge in energy demand is intricately linked to the power requirements of advancing AI technologies.

• AI and Healthcare Innovation: AI-driven advancements are set to revolutionize healthcare, contributing to longer, healthier lives.

This interconnected framework underscores the necessity for investors to adopt a holistic view, recognizing how these themes influence and reinforce one another.

Conclusion

Michael Zezas encapsulates the four megatrends not as isolated phenomena but as dynamic, interrelated forces shaping the investment landscape in 2025. By understanding these themes—Rewiring of the Global Economy, Longevity, The Future of Energy, and Artificial Intelligence and Tech Diffusion—investors can navigate the complexities of the market with informed strategies poised for long-term success.

For further insights and updates on these investment themes, stay tuned to Morgan Stanley's ongoing market analyses throughout the year.

Note: The information presented in this summary is based on the podcast transcript and is intended for informational purposes only. It should not be construed as financial advice.