- Strong U.S. Equity Markets, SPACs, and ETFs:
The U.S. equity markets are likely to kick off the year
strong, as a variety of players are expected to take advantage of
the early days of the incoming presidential administration. This
may lead to a flurry of deals, particularly during the first three
quarters, as companies seek to capitalize on favorable conditions
and the markets assess the impact of the new administration on the
economy and the broader geopolitical environment.
A new wave of SPAC IPOs gained momentum in late 2024 that is likely to continue into 2025, particularly as the incoming administration takes aim at accelerating business growth through deregulation and expected tax cuts impact capital gains and losses. The decline in the PIPE market to facilitate SPAC mergers will need a robust turnaround, however, to determine if the SPAC will ultimately prove to once again be a viable vehicle for alternative entry to the public markets.
Exchange-traded funds (ETFs) are also experiencing dynamic growth and change, particularly with the rise of thematic and niche ETFs that concentrate on specific trends like clean energy, technology, or emerging markets, appealing to investors interested in particular sectors or themes. As ETFs gain popularity, there is a possibility of increased regulation, with new rules potentially being introduced to ensure transparency, liquidity, and investor protection. Furthermore, innovation in product offerings, such as the creation of actively managed ETFs or those incorporating alternative assets, could provide investors with a wider array of investment options. These developments are shaping the ETF landscape by broadening the scope of investment opportunities and ensuring a more regulated market environment.
- Regulatory Changes and Digital Assets:
Republican commissioners and staff attorneys at the SEC and CFTC
have signaled that, while awaiting comprehensive legislation and
confirmation of the new SEC chair, they intend to reduce reliance
on enforcement to mold regulatory guardrails, provide increased
executive relief through no-action letters, and collaborate with
industry participants in crafting rules differentiating tokens as
commodities from tokens as securities. In doing so, clearer
regulatory guidelines could emerge, fostering a more favorable
environment for blockchain investments. Individual states such as
California, on the other hand, may increase their enforcement
activity in 2025.
- Divergent Landscape Continues for Climate and Human
Capital Disclosures: In the United States, there may be a
rollback of regulations at the federal level requiring climate risk
disclosures, while international issuers will still need to comply
with EU and UK rules, potentially creating disparities in
disclosure requirements. Similarly, there could be less emphasis on
human capital disclosures, including those related to ESG
(environmental, social, and governance) criteria. Investors might
also reduce their demands on issuers regarding these disclosures.
Meanwhile, certain states (e.g. California, Minnesota, and New
York) are continuing to move forward with their climate-risk
disclosure reporting regimes. In the EU and UK, the development of
sustainability laws and regulations continues at a fast pace, which
could influence debt and equity capital markets transactions,
including corporate disclosure, product level disclosure, and ESG
due diligence obligations and ratings.
- Revised Regulatory Framework for EU Equity
Issuers: In the European Union, the recent implementation
of the Listing Act is widely expected to represent a pivotal
milestone for EU capital markets, aimed at streamlining access and
reducing administrative burdens, particularly for well-established
issuers. This legislative measure is anticipated to further enhance
the European financial sector by simplifying the process for
companies to access public markets, thereby creating a more dynamic
and competitive environment and providing a more viable alternative
to standard bank financing. By simplifying some of the complex
offering and listing regulatory obstacles and facilitating easier
market entry, the Act is expected to enhance liquidity and attract
a broader range of issuers, including small and medium-sized
enterprises, fostering innovation and economic expansion across
member states. While it may take some time to fully benefit from
all the regulatory changes aimed at addressing the concerns raised
by practitioners in the field, the recent legislation clearly
indicates that the EU seeks to strengthen its position as a leading
global financial center.
- Anticipated Tax Policy Changes Likely to Influence Investment Strategies: Potential changes in tax policies, such as adjustments to capital gains tax rates, could significantly influence investor behavior and decision-making related to asset sales and investment strategies. With the Tax Cuts and Jobs Act of 2017 set to expire in 2025, Congress may consider extending it or implementing further tax cuts. Additionally, the use of advanced real-time tax management tools is likely to become more prevalent, enabling investors to optimize their tax positions concerning capital gains and losses. These developments could collectively impact the landscape of capital gains and losses, shaping investment strategies and economic growth.
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