Looking ahead to 2025, as global policies and economic performances diverge, and geopolitical situations change, the global economy is at a turning point. Fidelity International believes that rising inflation will become the fundamental situation for the US economy, and shares its outlook on the overall global economy and investment opportunities for investors facing divergent scenarios. Expectations of rising inflation in the US, significant impact of increased tariffs on the global economy Matthew Quaife, head of global multi-asset investment management at Fidelity International, stated that various factors, such as the overwhelming victory of the Republican Party in the presidential election, new stimulus measures in mainland China, and the Federal Reserve still considering accommodative policies, have significantly altered the economic outlook for 2025. Fidelity expects the fundamental situation for the US economy to shift from a soft landing to rising inflation, transitioning from supporting global economy with strong growth momentum to focusing on domestic development as protectionism escalates. Stimulative growth measures combined with loose fiscal policies are expected to raise inflation and reduce the risk of economic recession in the US, but other major economies, especially Europe and mainland China, will have to adjust to changes in US trade and industry policies. This could potentially weaken their own economic growth prospects and lead to deflationary pressures as external demand weakens. These divergences will support US growth in 2025, but the increasing government debt burden is a long-term potential concern. Fidelity believes that public debt is rapidly reaching its limits, and therefore higher-than-target inflation may be the most cost-effective solution to addressing debt sustainability issues. Expanding fiscal policies and significantly increasing tariffs may be core policies after Trump takes office. Based on strong consumer spending, solid balance sheets of private institutions, and a resilient labor market, the US is reducing the overall economic recession risks. The reform measures that the new government may implement are expected to increase the likelihood of a comprehensive rise in US inflation starting from the second quarter of 2025. If the new government pushes forward with its protectionist goals, the discussed tariff rates, currently expected to be as high as 60% for mainland China and 20% for other regions, may have a significant impact on next year's economic performance, although the actual outcomes after negotiations may be lower than expected. If the Federal Reserve shifts towards an interest rate hike cycle in response to inflation shocks, the US could once again face economic downturn risks. The terminal interest rate of the current market expectation for loose monetary policy may be higher than before the election, but Fidelity expects this loose policy to continue in 2025 until any significant changes such as tariffs and immigration policies or clearer fiscal policy expansions are made. European economy expected to cyclically rise The Eurozone economy faces a series of cyclical and structural challenges, having almost stagnated since 2023. Deflation and falling interest rates have helped restore corporate capital expenditure and consumer confidence, and the European economy is expected to cyclically rise in 2025. With increasing real disposable income combined with loose financing conditions, more excess savings can be released to stimulate consumption growth. However, the potential risk of US tariffs causing trade uncertainty may reduce economic growth by half a percentage point, especially in the automotive industry. Favoring dividend-paying stocks, European and other globally listed companies As the economic cycle transitions from mid-cycle to late-cycle, most investments yield positive returns but also higher volatility. This market state and volatility provide investors with different opportunities for stock and fixed income investments. Fidelity International fund manager Jochen Breuer stated that dividend-paying stocks remain an important part of investors' portfolios. Historical data shows that dividend strategies can provide relative downside protection during market volatility, offering attractive long-term total returns. Over the past 20 years, about 40% of the cumulative returns in the global market have come from dividend reinvestment. Stock income investors should focus on high-quality companies that can provide sustainable returns and growth potential through a strict valuation framework. Fidelity is relatively optimistic about globally listed global companies in Europe and other regions, as the valuations of these companies are relatively lower compared to their US counterparts. Investors should closely monitor stock valuations for next year. The strong stock price rally in 2024 was based on earnings growth, but to a larger extent on valuation expansion. When the market prices optimistic growth expectations, it is susceptible to unexpected negative events. Although investing in global markets cannot avoid unforeseen events, investors can mitigate the impact of unforeseen events by paying attention to valuations and avoiding stocks with higher valuation compression risks. Attention should also focus on whether the driving factors of corporate prospects come from internal growth rather than external environments. Asian consumer staple stocks and real estate can be considered For investors who prefer to invest in the Asian region, they can consider consumer staple stocks, which focus on local demand and have defensive characteristics, and are cheaper in valuation compared to other industries. Many consumer sectors in China and ASEAN markets, after a period of weakness, are expected to bring opportunities for profit recovery, leading to valuation increases in these stocks and providing attractive dividend yields. Real estate is another area of interest to consider, especially for owners who can sustain rental income flows, which are better than developers that are more sensitive to economic cycles. In addition, the trend of increasing capital allocation through dividends and share buybacks in mainland China and South Korea continues to grow, providing opportunities for investors. In mainland China, with slowing growth and weak investor sentiment, companies are eager to increase shareholder returns. Similarly, although the progress of the value enhancement plan in South Korea has been slow overall, the returns to shareholders of multiple portfolio holdings have continued to improve. Relatively optimistic about the European credit market, focusing on allocating different durations globally James Durance, fund manager at Fidelity International, stated that central bank policy divergences and narrowing credit spreads are beneficial for investors to adopt a global fixed income investment strategy that is not constrained by benchmarks to generate returns, by flexibly combining investments in corporate and government bonds priced in various currencies, and in various maturities of investment-grade bonds, high-yield bonds, and emerging market bonds. As some credit spreads are at higher levels, investors need to look globally for the best value. In the credit markets, Fidelity is relatively optimistic about Europe, as it offers more attractive relative value compared to the US. The European financial sector, in particular, is expected to continue its strong trend from 2024 into 2025. Higher interest rates are usually favorable for banks, and the current strong fundamentals and good credit are likely to persist.With the situation continuing to improve, it will be advantageous for investments in the industry. Compared to corporations, European banks have a lower dependence on trade and global economic prospects, combined with European policy support, which will be beneficial in the face of prevailing protectionism.From the perspective of interest rates, the high uncertainty of the premium on US government bonds may continue, so the primary focus should be on allocating investments with different maturities globally. With the yield of fixed income investments still at historical highs, paying attention to the corporate bond market with high-quality yields is expected to create attractive total returns. In terms of high-yield bonds, it is recommended to focus on higher quality companies and avoid chasing returns in high-risk structures. Overall, investors should emphasize risk management, focus on companies with lower debt levels, and avoid those with high leverage ratios.