15 mins of the most crucial investment insights - MUST WATCH

We were speaking with Kathleen who is the research director at XTB in the last kind of like video that we posted and we were talking a little bit about the market outlook for 2025 against the backdrop of the climate wars and what's going on with Trump and his tactics at the moment. What we want to do in this episode though is talk a little bit about global markets overall to see if there are any unexpected winners that perhaps you can keep an eye on or something for you to bear in mind if you're looking at tweaking your investment strategy moving forward. So I'm really really pleased to be joined again by Kathleen from XTB. Thank you so much for coming back. Thanks so much for having me back Peter. First question for you then. In the last episode you mentioned the fact that Europe has done pretty well. Are there any regions that are poised for you know the strongest economic growth in 2025 as you guys are seeing it from the data and the information you're coming across at the moment? Yeah I mean there's been a flurry of revisions to economic forecasts for 2025 but it seems like at this early stage there's a bit of a consensus that the US will still outperform in the G7 even though its rate of outperformance has definitely slowed. What's really been interesting and will be interesting probably for a lot of your viewers is that the UK is poised to be the second best performer in the G7. So it's expected to outperform Japan, outperform Europe and that's based on OECD forecasts at the moment. So growth has been scaled back a little bit for the UK but it is expected to do better. So aside from the US then it comes in as second place. Now it's overtaking Canada because Canada's growth has obviously been slashed in half its growth forecast for this year and next year has been slashed in half because of its close proximity to the US and the fact that the focus of tariffs is very much on Canada. Likewise Mexico which is expected to go into a recession. Now what's conspicuous by the UK's absence really is tariffs. So Donald Trump has actually struck a fairly friendly tone with the UK. It hasn't threatened tariffs on the UK. It has obviously on the EU that's expected to dent EU growth and that's having a you know a big impact there particularly on certain sectors autos for example. But the UK in terms of its growth prospects is expected to do well. Now we started off on a bit of a dud note because growth unexpectedly contracted in January. So these are just forecasts. They can be revised up and down throughout the year as well. So it's just worth noting that. But what it certainly does do it could maybe help investors just to maybe take a second look at the UK. I think one of the key themes that we didn't see coming this year was maybe that defence. We knew that Trump had wanted Donald Trump had said leading up to his inauguration that he wanted peace in between Russia and Ukraine. We didn't quite realise that that would mean that you know the catalogue of events that have happened since then with the US threatening to stop aid military aid to the Ukraine telling the Europeans they need to pay more. They can't rely on the US for their security anymore. That has triggered a massive inflow into European and UK defence stocks and they are the best performers by far so far so so far this year. Germany has a lot of them. France as well but also the UK. We've got BAE Systems. Rolls Royce as well. They're the top performing stocks in the UK this year. Rolls Royce has been a top performer for a number of years now. But those stocks have really really done well and they're able to cover over some of the damage that maybe Donald Trump's policies have done to the auto sector. They've weighed quite heavily on the luxury sector as well. So we've seen that the diversification that European markets offer has really come to the fore and that's why European stock indices are outperforming their US counterparts so far this year. It's really interesting you talk about the UK being the second forecasted second largest kind of growth country in the G7 there. You mentioned some of the defence stocks there. Those are large cap companies. Do you think some of that will trigger down to maybe some of the medium and small cap companies as well? Is that to be expected? I think so. It's worth noting that the FTSE 250 which has a lot of them the middle mid-cap stocks in the UK. That's also a very internationally focused index. It has I think more than 55% nearly 60% of companies derive the large amount of their revenues from overseas markets. So the global space is still really really important for the UK but it does go to show that there's some resilience in the UK that even with these external threats that are going on and then the tariff risks that UK stocks of all sizes could potentially do well. In terms of those stocks that are most closely linked to the performance of the domestic economy, I think it is going to be a bit of an uphill battle for some of those consumer stocks. Now this is a bit of a global phenomenon at the moment because growth has started off on a weak note. We don't know where we are. There's the prospect that the Bank of England won't even be able to help the economy with interest rate cuts if inflation goes out of control. Now that's a little bit of a hypothetical at the moment. If the Bank of England, what would really give UK mid-caps the biggest boost would be more rate cuts from the Bank of England. Right now there's two rate cuts expected but having quite a high neutral rate above three percent is probably not going to help a lot of households, a lot of consumer sentiment but also these mid-cap businesses. So the Bank of England, if we see tariffs come on board maybe just for a short period of time and so they cause less disruption to the domestic economy and to the inflation outlook, then that could be when I think the domestic-focused companies, those consumer-focused companies in the UK could really take off. I think we're going to have to wait though until Q2 to see how they're going to fare. So just as a point of interest for the people who will be watching and listening to this, you mentioned there that the mid-caps would benefit with rate cuts. Can you explain a little bit around why that is? Is that purely because it's the cost of borrowing so more money to be able to invest into this? What are the main factors that would happen there just for the understanding that people may be thinking well why is that? I think there's two factors. So number one, for mid-cap stocks a lot of them will rely on their growth will be funded by borrowing. So they need interest rates because it reduces their cost of borrowing which means that they've got more for profit. So if your debt servicing costs are lower that's good news because you can keep more of your money that you earn for profit. That's on one side and that really impacts the slightly bigger mid-caps, those more internationally focused mid-caps. For the more domestically focused mid-cap where they benefit from interest rate cuts is actually what that means to the regular person on the street. So if we've all got slightly lower interest rates that means our borrowing, maybe our credit card spend, also our mortgages potentially, they could be lower. Those repayments could be lower if interest rates do fall in the coming months and years and that gives us more money to spend. So particularly for those economies, for those companies that are linked to consumption and consumer spending, that's how they benefit most directly from cuts in interest rates. That's great, thanks for explaining that. Do you see, you know we spoke a little bit about you know the UK and potentially Europe has kind of been mentioned there, what about emerging markets? Is there anything on the horizon or expectant in emerging markets potentially as an opportunity or areas where you think growth might be delivered? Yeah I mean look, some of the best performing stock indices have been in Asia. Not everywhere, it hasn't been broad-based but certainly China, Hong Kong, they have really seen a massive increase. Now you know people say well China is not an emerging market and I know it's not but usually what's good for China is good for the rest of the region and we are starting to see some fraying in the likes of Indonesia, its stock market is really plunged on the back of growth fears. So growth fears are very very real but there are some pockets of opportunity. Look at the indices that are really underperformed. So what we've got is like obviously China is underperformed, Hong Kong is underperformed and what's great about those two indices is that they're really playing catch-up because whilst their economy has been slow to pick up post-Covid, they've obviously got their own thing going on in terms of AI models and tech but their tech sector is really leading those indices higher. If we look at countries like Vietnam, you know a big exporter, so far it's managed to avoid tariffs but I think we need to look at what the reciprocal tariffs could be for there. So I'd be a bit more careful about Asia X Japan and X China. I think LATAM is an interesting dynamic as well, particularly what we're seeing in the likes of Brazil. So there's a lot of around, you know Brazil for example has seen sentiment data absolutely fall off a cliff. There's a lot of expectations about inflation going higher, in fact they're expected to hike interest rates when the rest of the world is cutting them. Added to that however the real economic data is not nearly as bad as the sentiment data. So we could start to see a bit of a sentiment shift there and likewise you know South America itself can have their own trade routes. They also export a lot of really key commodities around the world and they're going to still be in great demand, particularly if people shun the US and start looking elsewhere. That could give the likes of Brazil, you know even Mexico which seems like it's on its knees at the moment because of the way that the US is talking about tariffs with Mexico. But again I think if the US turns inwards, it has done this in other periods of history, the rest of the world can then forge those alliances and ultimately become less reliant on the US. So I would look at for sure. I like Brazil even though I know it's got a lot of challenges. I just don't think the economic data is nearly as bad as what people thought it would be. I also think that China and Hong Kong have a much better way to go and I prefer the bigger Asian economies rather than you know some of the other Asian economies who may have at the start of the year benefited from China because China was largely the target of Donald Trump tariffs. I think they're the target in the second round of tariffs. Yeah and it's interesting because yeah some of those countries are actually in the BRICS alliance as well. So it also poses that question as well around how effective and how progressive they can afford to be in the coming years as well on the on the global land kind of space because you know they are a direct kind of a competition to the American dominance at this point in time which you kind of alluded to in the first episode. Yeah I agree. I mean look at India as well. It's less of an export driven economy so in that sense a bit like the UK could be spared the worst of Trump's tariff threat. That could lead to its outperformance as well. Also you know that there are signs that you know people are getting a bit more interested in Russia again. Now there's not much to invest in in Russia but the ruble is one of the better performing currencies in the world so far this year on the expectation that the war with Ukraine will end, that sanctions may be lifted. Now I think that will take a much longer period of time as some expect but certainly in terms of the ruble it's worth giving that a look if you're very tolerant of risk I suppose but if that if we do see a peace deal between Ukraine and Russia then we could see extra gains I think and further to go on the upside for the ruble. Yeah thanks for that. I mean so with all the research and everything that you guys come into contact with on a day-to-day basis and I know that the information can be absolutely vast. Here's the important question for you just for those who are watching and maybe thinking about XCB we're hearing more and more about you guys. How does this feed into the decisions and the things that you actually do for clients? There's a lot of information but knowing what to do with it is a completely different thing. So how does that feed into what you guys do on the investment of the clients? I mean absolutely look it's up to everybody to make their own decisions about how and where they invest their money but you know we provide actionable trade ideas and I think context is everything. So whenever if you're looking at markets if you've got 100 pounds saying you want to put that into a market well maybe if you read the research you'll say right well I won't necessarily put all of that into just one stock or one you know region I might spread that around a little bit. We have plenty of research I mean you know you've got research on all types of products that we offer whether it's commodities, great commodities analysis on our site. We've also got you know market updates but throughout the day as well so you're seeing what's going on in real time. Also as most of your listeners and watch viewers will know Peter you know key events around central banks around key economic data releases we are on top of all of those so it's again it's about providing that context. Yeah context is really is the most important thing so much there's so many ways in which you can interpret it or what's the context around it and unfortunately when you hear like news snippets they often miss the all-important context that make it make sense or make it a piece of information that you either take a knee-jerk reaction to or you've made a more considered kind of consideration on so yeah thanks for that but like I said you know thank you so much for joining us Kathleen. As a last kind of leaving message for this video and this episode again you're probably hearing more and more and more about HCB. I've been working with them now this is my second year you know they're all-in-one low-cost platform to help you invest in ETFs and stocks. It's a really super simple streamlined offering if you look at their investment plans you can literally just set up your plan you can put whatever you want into it yes you need to understand what you're doing but they've got huge education and informational calls that you can actually pull on there and you can just set your investment strategy and you can just leave it. I know that your money is there invested for the long term obviously tax efficiency is key it's really really important to use your ISO allowances to make sure you can grow your money over the long term benefit from compound interest whilst enjoying the tax free benefits of that and they do have at the moment a really great offer where they're offering six and a half percent on uninvested funds for 90 days after 90 days it goes down to four and a half percent and that is a variable rate based on the bank agreement because if the bank agreement base that goes up goes down like all other interest rates you'll see that adjustment as well. If you are kind of investing at the moment and perhaps you're looking at everything that's going on you're thinking maybe I want to take some money off and you know put some money in cash what better place to have it than a place that's going to give you six and a half percent in 90 days I think it's a pretty compelling offering it's very very competitive on the market I'll leave a link down below so you can actually check them out but again Kathleen thank you so much for joining me. Thank you so much for having me Peter. Thank you and we'll speak to you again next time. Cheers guys, catch you later.