Justin Onuekwusi, chief investment officer at UK wealth manager at St James's Place, shares his insights on hidden investment opportunities in 2025. 

In the wake of elections across the globe, markets are confronting heightened uncertainty. Change will continue to be the only constant in 2025 as new governments implement their policy agendas, according to Justin Onuekwusi (pictured) at St James's Place.

Onuekwusi highlighted how in environments defined by uncertainty, extreme outcomes, known as ‘fat tails’, are more likely to occur. “Fat tails can’t be timed, but they can be prepared for. We can increase the chances of success by diversifying portfolios across asset classes, regions and strategies, ensuring they’re prepared for any scenario,” Onuekwusi said in a note.

“Our investment process is grounded on seeking out opportunities in undervalued, often overlooked, and beaten-up asset classes. By focusing on asset classes priced cheaply at extreme levels, we aim to uncover the hidden opportunities that lie within these extremes,” he continued. “Two such asset classes demonstrating this potential are small-cap equities and emerging market equities, both trading at valuations that suggest significant upside potential. Additionally, diversification remains critical to minimising the risks of fat tails and positioning portfolios to weather any market environment.” 

“Small-cap stocks are one of the most overlooked segments of the market. After significantly underperforming their larger-cap peers, they are now trading at extremely pessimistic valuations, creating a rare opportunity for investors who are willing to show patience and take a long-term view,” Onuekwusi said.

“Small-cap companies often have a domestic focus and can adapt more quickly to more economic shifts, which is particularly important in an environment where governments are more focused on their domestic economies and less on increased globalisation,” he added. “Many small caps operate in emerging industries, such as renewable energy, biotech, and digital transformation, offering exposure to high-growth sectors. Over the long term, small caps have demonstrated higher earnings growth compared to larger-cap peers.” Stonehage Fleming is also positive about the small cap segment of the equity market.

Emerging markets equities
“After years of underperformance relative to developed markets, they are trading at near historic lows – valuations seen only a quarter of the time over the past two decades,” Onuekwusi said. 

“Right now, emerging markets are trading at a steep discount of -34 per cent compared to developed markets – well below its long-term average discount of 26 per cent. Key structural drivers make emerging market equities particularly compelling. Young and growing populations in many emerging market countries provide a strong foundation for sustained economic growth,” he added. Rapid urbanisation is also driving increased demand for infrastructure, housing, and services. “Rising incomes are fuelling consumption, creating opportunities for companies in sectors like consumer goods, technology, and healthcare. These trends boost domestic consumption and create opportunities for companies to capitalise on growing demand for goods and services.” 

“Meanwhile, a shift towards higher-value sectors such as technology and consumer goods is further strengthening the long-term case for emerging market equities. For example, regions like Asia are home to some of the world’s most dynamic technology firms, which are driving innovation and commanding significant market share in areas like semiconductors, e-commerce, and renewable energy,” he added.

“Challenges remain, including geopolitical tensions, high US interest rates and a strong dollar. But history shows prolonged underperformance often sets the stage for significant rebounds. As global monetary policy eases and geopolitical risks are repriced, emerging market equities could deliver robust returns,” Onuekwusi continued.

Onuekwusi highlighted how diversification is the cornerstone of portfolio management, and its importance is magnified in periods of heightened uncertainty. “While equities and bonds remain the foundation of most portfolios, their strategic diversification across regions and the renewed potential of bonds have taken centre stage,” he said.

“US equities have been a strong performer in recent years but are starting to look expensive relative to other equity markets. Regional diversification ensures that portfolios are positioned to capture opportunities across different geographies while mitigating localised risks,” Onuekwusi added. “By balancing exposures across regions, portfolios can tap into varied growth drivers and reduce dependence on any single market. This approach not only spreads risk but also positions investors to benefit from divergent economic cycles and policy environments.”

Bonds
“After a prolonged period of low yields, bonds are regaining their role as a vital component of diversified portfolios. Elevated interest rates have restored the income-generating potential of fixed-income securities while also enhancing their appeal as a hedge against equity market volatility,” Onuekwusi said. “Bonds are once again proving their value in portfolio construction. With interest rates expected to remain elevated, the ability of bonds to deliver steady income and stability is more relevant than ever. In an environment where equity valuations are being reassessed, bonds provide a critical anchor for long-term investors.” 

Key factors supporting bonds today include attractive yields. “Yields on government and corporate bonds are at multi-year highs, providing investors with a meaningful source of income,” he added. “In turbulent markets, bonds have historically acted as a stabiliser, helping to offset equity losses. This dynamic remains crucial, particularly as geopolitical and economic uncertainties persist. Fixed-income assets also offer an essential counterweight to equities, reducing overall portfolio volatility while providing liquidity in times of market stress." 

“The challenges investors face today – including geopolitical risks such as tensions in the Middle East and unpredictable US foreign policy – are accompanied by an increased likelihood of fat-tail events in 2025,” Onuekwusi said. “Diversifying across asset classes and regions remains the cornerstone of defending against the unexpected and seizing opportunities as they arise,” he added.

“In an environment rife with exuberance and the fear of missing out, maintaining focus on achieving long-term goals rather than chasing short-term gains is more important than ever. The best climbers are those who go steadily, ensuring every step is taken with purpose and every risk is minimised with preparation,” he said. “While we can’t predict the precise shape of the market landscape, we can prepare for its many possibilities.”