In 2025, what investment themes should be focused on in the face of the rapidly changing global economy and market?

On the 9th, Morgan Stanley released the "Top 10 Theme Strategies for 2025," where the Edward Stanley team analyzed important investment trends for the coming year.

Morgan Stanley pointed out that historically, popular themes with strong profitability usually have strong sustainability, such as AI, defense spending, and obesity drugs. These themes have already had a profound impact on the market, and this impact is expected to continue to expand this year.

In addition, some themes that have not yet received sufficient attention from investors may become increasingly important in 2025, such as negative electricity prices and quantum computing, which are expected to emerge as new investment hotspots.

1. India's Golden Decade

Morgan Stanley forecasts that India's economy will continue to be a highlight among Emerging Markets in 2025. Thanks to the strong growth in domestic demand, India's GDP growth rate is expected to reach 6.5%.

The report pointed out that the balance sheets of Indian enterprises and the financial sector are sound, while there is ample policy space, providing support for economic development. The recovery of consumer demand, improvement in the rural economy, and growth in public and household capital expenditures will be the main driving forces of India's economy.

2. European defense spending is rising.

Morgan Stanley pointed out that European defense spending has entered a multi-year growth phase, driven by factors including: compensating for the low investments of the past 30 years, reducing dependence on USA defense support, and replenishing military equipment inventories following the Russia-Ukraine conflict.

Morgan Stanley predicts that to fill the past investment gap, Europe needs to increase defense spending by more than 2 trillion dollars at current prices. Additionally, NATO allies may respond to USA requests to raise their defense budgets, further deepening this trend.

3. Recovery of mergers and IPOs.

With declining interest rates and an improving Capital Markets environment, Global mergers and IPO activity are expected to see a recovery.

Morgan Stanley expects the number of merger announcements in 2025 to increase by 50% year-on-year. This is attributed to lower interest rates, a strong stock market, and corporate confidence. The Republican victory in the presidential election may further drive the loosening of regulatory policies, helping to accelerate this trend.

Especially in Europe, expected to lead with a 49% year-on-year growth, while the USA has 4 trillion dollars of "dry powder" (uninvested private equity funds) waiting to enter the market. Additionally, companies have 7.5 trillion dollars in cash reserves, creating favorable conditions for mergers and IPOs.

4. The return of manufacturing to the USA.

The report states that the USA is in the early stages of reindustrialization, a process that presents a long-term economic opportunity of up to 10 trillion dollars.

The USA's manufacturing sector has experienced significant decline over the past 20 years. While it is commonly believed that "reshoring" means closing factories in Asia and then reopening alternative ones in the USA, Morgan Stanley indicates that such cases are merely exceptions.

"We believe that the world needs to increase manufacturing capacity, and due to its structural changes and emphasis on resilience, the USA is now more capable than it has been in the past 40 years of obtaining new factories."

Morgan Stanley notes that the USA is the least self-sufficient country among the major global economies, a situation that is expected to improve over the next few decades.

5. Nuclear Energy Renaissance

Nuclear energy has regained attention due to its potential in decarbonization, energy security, and support from AI technologies. Morgan Stanley predicts that by 2050, the share of nuclear energy in the global power supply will increase from 12% in 2022 to 17%.

The development of Small Modular Reactors (SMRs), innovation in nuclear financing models, and the drive for Carbon Neutrality will create over 1.5 trillion dollars in investment opportunities for the nuclear energy industry.

"We believe that the renaissance of nuclear energy has five major trends: COP28 goals, GenAI, financing, construction risks, and SMR."

6. The Rise of Negative Pricing Phenomenon

The renewable energy market in Europe is facing the growing challenge of negative pricing becoming increasingly common, and as the installed capacity of renewable energy continues to grow, this trend is expected to continue. Morgan Stanley believes that the negative pricing phenomenon poses risks to renewable energy developers but also brings opportunities for grid infrastructure construction.

Morgan Stanley pointed out that companies capable of flexibly adjusting their power generation (such as energy storage and Smart Grids) will benefit. For example, pumped storage power stations can store electricity when prices are negative and release it during peak prices to profit.

7. The AI Revolution in the Financial Industry

The application of AI in the financial industry is experiencing explosive growth. Morgan Stanley noted that Banks and Insurance companies are the pioneers of AI applications.

In a recent Analyst survey, 27% of financial firms reported substantial improvements in their Business due to AI applications. In the future, AI applications in the financial sector will include risk management, customer service automation, and investment recommendation optimization, which brings important investment opportunities for financial stocks.

8. Initial Exploration of Quantum Computing

Quantum computing is regarded by Morgan Stanley as a "known unknown" with potentially far-reaching long-term impacts.

Although quantum computing is still in its early stages of development, the report suggests that businesses and governments need to proactively invest in related fields, such as post-quantum encryption technology, to address potential future cybersecurity threats. Additionally, quantum computing also presents investment opportunities in the telecommunications, satellite, and network infrastructure sectors.

9. The Rise of AI Agent Technology

Morgan Stanley points out that generative AI has made significant breakthroughs over the past two years, and will enter the development stage of Agentic AI in 2025.

This technology will enable AI to shift from a passive response mode to a new phase of actively solving problems and enhancing productivity. For example, AI agents can predict user needs, automatically complete tasks, and significantly increase efficiency for businesses and individuals. Morgan Stanley expects this trend to generate trillions of dollars in economic impact for the enterprise software market.

10. Market Potential of Oral Weight Loss Drugs

The obesity drug market faced bottlenecks in 2023 due to shortages of injectable GLP-1 drugs. Morgan Stanley believes that the launch of oral GLP-1 drugs in 2025 will reignite market interest and could propel obesity drugs to become one of the largest single categories in the pharmaceutical industry’s history.

Furthermore, the rising health awareness among consumers will also have a positive impact on investments in health foods and related sectors.

Editor/ping