Morgan Stanley 2025 Strategy: High-Yield Bonds Steady the Ship, Copper and Uranium "Gap Market" Lead the Way

According to the Zhitong Finance APP, Morgan Stanley recently released its 2025 Global Strategy Research Report, which provides an in-depth analysis and forecast of key areas such as global economic growth, policy direction, asset allocation, and the commodity market, presenting investors with a detailed market guide.

Macroeconomics: Growth Divergence and Weak Dollar Cycle

The Federal Reserve's policy has shifted, with only one expected rate cut of 25 basis points in 2025 (possibly implemented in June). This expectation has led the market to have a clearer judgment on the direction of U.S. interest rates. As a result, the year-end target for the 10-year U.S. Treasury yield has been lowered to 4.0%, while the current yield is 4.3%. The decline in real interest rates has become the main driving force behind this change. This means that in the current economic environment, the market's pricing of funds is undergoing subtle changes, and investors need to closely monitor the trend of real interest rates to seize investment opportunities in the bond market.

At the same time, global interest rates are showing a converging trend. The European Central Bank maintains an accommodative monetary policy, with the target for the German 10-year government bond yield set at 1.80%, which, compared to the current level of 2.84%, highlights the unique appeal of the European bond market during the interest rate decline cycle. Meanwhile, the Bank of Japan has postponed its rate hike expectations to September, with the 10-year Japanese government bond yield anchored at 1.2%. This series of actions indicates that coordination and balance in interest rate policies among major global economies are gradually taking shape.

The trend of the U.S. Dollar Index (DXY) has also entered a new phase. Although the Federal Reserve's rate cut is limited, the market's expectation of "American exceptionalism" is gradually shifting towards "global convergence," providing a temporary safe-haven asset opportunity for non-U.S. currencies such as the yen and the pound. The target exchange rate for the yen against the dollar is set at 141, and the target exchange rate for the pound against the dollar is set at 1.3. These exchange rate targets reflect the market's new expectations for global capital flows and exchange rate balance.

G4 Central Bank Policy Path: Extended Easing Cycle

Currently, the monetary policy paths of major global central banks show significant divergence and adjustment trends, with the extension of the easing cycle becoming the main theme. However, the policy directions of different economies have their own characteristics, profoundly impacting financial markets and the global economic landscape.

In the United States, the current policy rate is 4.375%, and it is expected to drop to 4.125% by the end of 2025, with a key point occurring in June when a 25 basis point rate cut is anticipated. This rate cut expectation reflects the weakening momentum of U.S. economic growth and the easing of inflationary pressures. The Federal Reserve aims to balance economic growth and inflation control by moderately lowering interest rates, providing support for sustainable economic recovery.

In the Eurozone, the current policy rate is 2.50%, and it is expected to be lowered to 2.25% by the end of 2025, with a key point possibly in the April meeting when the European Central Bank may signal easing The Eurozone's economic growth faces numerous challenges, including the impact of geopolitical tensions on trade and weak internal market demand. By maintaining relatively low interest rates, the European Central Bank hopes to stimulate investment and consumption, driving the economic recovery process.

Japan's current policy interest rate is 0.50%, expected to rise to 0.75% by the end of 2025, with a key point in September when a 25 basis point increase is anticipated. Although the Japanese economy is also under some pressure, the Bank of Japan has adopted a relatively cautious strategy in controlling inflation and stabilizing the economy, with a modest rate hike reflecting concerns about the still fragile foundation of economic recovery and comprehensive considerations regarding factors like exchange rate stability.

The current policy interest rate in the UK is 4.50%, expected to drop to 4.25% by the end of 2025, with a key point in the March meeting where no changes are expected. The UK economy is affected by the dual impact of Brexit aftereffects and a slowdown in global economic growth. After weighing various factors such as economic growth, inflation, and employment, monetary policymakers have chosen to keep interest rates unchanged in March, with adjustments to be made later based on the development of the economic situation.

Credit Market: Risk Rebalancing Under High Valuations

Currently, global credit spreads are nearing their lowest levels in 20 years, with a complex and ever-changing market environment, the directional indicators for credit bond investments are quietly shifting. Morgan Stanley, based on in-depth market analysis and accurate forecasts, has proposed a "delayed reduction" strategy recommendation, providing important reference guidance for investors' layout in the credit bond market.

Morgan Stanley believes that maintaining risk exposure in the first half of the year is a reasonable choice, but the key lies in precise adjustments to adapt to dynamic market changes. In terms of areas to increase holdings, high-yield low-price bonds have become the preferred choice. These bonds can provide relatively high returns in the current low-interest-rate environment, and their relatively low prices offer certain valuation advantages and upside potential, bringing investors relatively stable cash flow and capital appreciation opportunities.

U.S. high-yield BB-rated bonds are also a key area for increased holdings, with current spreads at 291 basis points, expected to narrow to 250 basis points by 2025, indicating an improvement in market expectations regarding their credit risk and highlighting their investment value. Investors have the opportunity to achieve higher returns under relatively controllable credit risk. Asian investment-grade bonds are similarly favored, with target spreads of 80 basis points. The lower spreads indicate lower credit risk and relatively stable returns, making them an ideal choice for balancing investment portfolio risk and return amid increasing market uncertainty.

For areas to reduce holdings, Morgan Stanley points out that the risks associated with CCC-rated high-yield bonds are gradually accumulating, with target spreads expected to widen to 425 basis points by 2025. The rising credit risk diminishes the investment attractiveness of this sector, and investors should appropriately reduce holdings to avoid potential risks European single B-rated bonds have also been included in the reduction range, with a target spread of up to 550 basis points, reflecting increasing market concerns about their credit status. Against the backdrop of uneven global economic recovery and rising policy uncertainty, the default risk may further increase. Reducing holdings of such bonds helps optimize the credit quality of the investment portfolio and lowers the overall risk level.

Commodities: Supply and Demand Game and Structural Opportunities

In the commodities market, tariffs and OPEC+ production decisions have become important factors affecting the oil market. Although there were initial expectations that OPEC+ would extend the production cut agreement again, OPEC+ announced on March 3 that it would resume voluntary production cuts starting in April as previously planned. However, it stated that it would remain sensitive to market conditions, and production may only increase slightly month by month rather than fully recover. Morgan Stanley's updated supply and demand situation indicates that the oil market will be looser than before, thus lowering the 2025 oil price forecast to $70 per barrel (original forecast $75).

In the natural gas market, European natural gas prices remain high due to tight supply, but headlines about Russia potentially resuming gas deliveries to Europe led to a 10% price drop last week. If a ceasefire is achieved, it is expected that 10 billion cubic meters of Russian gas will return to the European market annually, increasing European gas supply by 5%.

In the metals market, copper is the preferred base metal, with supply growth expected to slow down by 2025 and market positioning having been cleared; the uranium market is optimistic due to potential improvements from contract activities and disappointing supply; silver has more upside potential than gold due to strong physical demand and declining yields; a moderately bearish outlook is held for nickel, aluminum, and lead, as nickel supply cuts reversing and falling alumina prices may pressure aluminum.

Core Conclusion: Seizing Convergence and Divergence

In the 2025 investment market, Morgan Stanley emphasizes the main theme of "global policy convergence" and "regional asset divergence," providing clear directional guidance for investors. Here is an in-depth analysis of five major investment opportunities based on this theme:

Opportunities in Gold and Long-Duration Bonds

As global economic growth slows and policy uncertainty increases, real interest rates are trending downward. This trend provides a favorable market environment for interest rate-sensitive assets. Gold, as a traditional safe-haven asset, significantly enhances its investment value in the context of economic instability and declining real interest rates. Investors may consider increasing their allocation to gold to hedge against the volatility of other risk assets.

At the same time, long-duration bonds also benefit from the decline in real interest rates. Lower interest rate levels not only enhance the attractiveness of long-duration bonds but may also bring opportunities for capital appreciation. For investors seeking stable returns and risk hedging, allocating to long-duration bonds is a good choice Weakening Dollar Creates Arbitrage Opportunities for Yen, Pound, and Euro

The US dollar index is facing downward pressure in 2025. This change is primarily driven by expectations of interest rate cuts by the Federal Reserve and the backdrop of global policy convergence. The relative weakness of the dollar provides investors with opportunities for foreign exchange arbitrage.

Specifically, shorting the dollar while increasing holdings in non-dollar currencies such as the yen, pound, and euro may yield profits from exchange rate fluctuations. Currencies like the yen and pound exhibit strong safe-haven properties and appreciation potential under certain economic and policy environments. Investors can flexibly adjust their foreign exchange asset allocation through foreign exchange trading tools to seize this market trend.

Structural Shortages of Copper and Uranium Leading to Excess Returns

In the commodity market, copper and uranium are expected to become sources of excess returns due to supply-demand mismatches. The copper market is facing a slowdown in supply growth, while demand from global electrification and infrastructure construction continues to rise. This supply-demand imbalance will support copper prices, providing medium to long-term investment opportunities for investors.

The uranium market is also worth attention. With the recovery of the global nuclear power industry and increasing demand for clean energy, uranium demand is expected to rise. At the same time, uranium supply is relatively stable and limited, and the supply-demand mismatch will drive uranium prices up. Investors may consider participating in copper and uranium market investments through related funds or derivatives.

Prudent Downward Adjustment, Focus on High-Yield Quality Assets

In the credit market, Morgan Stanley advises investors to adopt a prudent attitude. The overall market environment requires investors to pay more attention to controlling credit risk. Specifically, low-rated tail risk assets should be avoided, as these assets may face significant default risks during market volatility and economic downturns.

Conversely, focusing on high-yield quality assets is a more robust strategy. These assets not only provide relatively high returns but also possess good credit quality and liquidity. Investors can achieve a balance between returns and risks by conducting in-depth research and selecting bonds issued by companies with stable cash flows and good credit records.

Regional Asset Differentiation: Capturing Investment Characteristics in Different Areas

Against the backdrop of global policy convergence, asset performance in different regions will show differentiation. Investors need to develop differentiated investment strategies based on the economic conditions, policy directions, and market characteristics of each region.

In the US market, despite a slowdown in economic growth, the stock market still presents certain investment opportunities driven by new policy expectations and corporate earnings growth. Particularly, industries supported by policies and benefiting from economic structural adjustments may demonstrate strong resilience.

The European market is influenced by Germany's large-scale fiscal plan, and there are upward risks for the Eurozone economy. Investors can focus on non-China exposed stocks in the European market, as well as sectors benefiting from increased defense spending and the recovery of domestic demand.

The Japanese market is a major highlight for 2025, with economic growth expected to further improve. The Japanese stock market, in the context of sustained inflation and a steepening yield curve, presents good investment value in sectors such as banking, insurance, and real estate.

Emerging markets, due to the heightened risks of trade tensions, are viewed as the least favorable market by Morgan Stanley. Investors should remain cautious when allocating in emerging markets, emphasizing risk control and asset quality In summary, the investment market in 2025 is full of challenges and opportunities. Investors need to closely follow global policy dynamics, flexibly adjust their investment portfolios, seize opportunities brought by policy convergence and regional asset differentiation, while effectively managing risks to achieve steady asset appreciation