The Vanguard MSCI Index International Shares ETF (ASX: VGS) gives investors one of the easiest ways to access the global share market. But after a strong year in 2024, where the VGS ETF unit price has risen by over 26%, it's worthwhile asking what could happen next year.
I'd say the last two and a half years have been characterised by inflation and interest rates. The interest rate and inflation story may influence the global share market again in 2025, but geopolitical factors could also play their part. The incoming US President, Donald Trump, could really shake things up, which could have implications for commodity markets, US company tax rates, and a possible trade war.
When we look at the VGS ETF's holdings, around three-quarters of the Vanguard MSCI Index International Shares ETF is invested in US-listed businesses. That is a very influential allocation, so the US market and the US economy in general could play an important role.
Over the long term, the global share market has managed to deliver growth because the underlying companies have grown their earnings. I believe that dynamic will continue over the next ten years.
But, specifically looking at 2025, let's consider what one of the world's leading research teams thinks could happen for the global share market, which the VGS ETF is a good substitute for.
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Expert views on the global share market
Dubravko Lakos-Bujas, head of the global markets strategy at JPMorgan, believes we're going to see more volatility in 2025. Lakos-Bujas said:
The central equity theme for next year is one of higher dispersion across stocks, styles, sectors, countries and themes. This should improve the opportunity set and provide a healthier backdrop for the active management industry after consecutive quarters of record narrow and unhealthy equity leadership.
In other words, it could be a stock-picker's market.
In 2022 and 2023, the Western world collectively saw inflation and rising interest rates. But now, central banks are on different paths, there is uneven inflation progress, and technology innovation could cause a lot of variability between companies and countries.
Lakos-Bujas then said:
The U.S. could remain the global growth engine with the business cycle in expansion, a healthy labor market, broadening of AI-related capital spending, and the prospect of robust capital markets and dealmaking activity.
On the other hand, Europe continues to face structural challenges, while EM [emerging markets] struggles with higher-for-longer rates, the strong U.S. dollar and incremental trade policy headwinds.
JPMorgan thinks Japanese shares can benefit from the current inflation by improving 'real' wage growth, accelerating share buybacks and continuing corporate reforms. Japan could also benefit from "strong demand and favourable currency rates on the international stage". Japan is the second largest country allocation inside the VGS ETF portfolio.
Lakos-Bujas concluded with the following comments:
We think the key risk for our base case and especially the riskier segments of the market is one where the disinflation progress fully stalls and starts to reverse, forcing the Federal Reserve (Fed) to open doors to potential hikes later in 2025 or early 2026. If this scenario were to start playing out, we will likely have to revisit our outlook.
Vanguard MSCI Index International Shares ETF expected to rise
Most of the VGS ETF is invested in US, UK, European and Japanese shares, and JPMorgan is positive on each of those markets.
On 17 December 2024, it said it expected that by the end of 2025, the US share market would rise around 9%, the European share market would rise 5%, the UK share market would rise 4%, and the Japanese share market would increase 10%.
Overall, it seems like it could be a volatile but positive time for the global share market, including the VGS ETF.
