2025 Midyear Investment Outlook: The Global Reset
For the first half of 2025, shifting policies and trade dynamics have stirred market uncertainty. But amidst turmoil comes opportunity. Discover what’s ahead for the rest of the year.
Trade war
Although we don’t know the full effects of the trade war, changing government policies have sparked a global reset of economic systems.
European markets
European markets should benefit from greater fiscal spending, an improving consumer backdrop, and further rate cuts from the ECB.
Chinese markets
Monetary and fiscal policy in China is helping household consumption and is likely to spur economic growth in the country.
Opportunities amidst uncertainty
Shifting trade relations and political alliances have sparked a global reset of economic landscapes. As a result, uncertainty soared across global markets in the first half of 2025. But periods of change often bring new opportunities. In our midyear investment outlook, we share our thoughts on the possibilities for the rest of 2025 and examine how investors can diversify portfolios across regions to weather the volatility.
What to watch for 2H 2025
The evolution of the trade war is the pivotal question at midyear, and continued uncertainty shapes our base case. We have also outlined a downside and upside scenario that could occur if geopolitical tensions escalate, or if we get a reprieve.
For our base case scenario, we believe that US domestic policy volatility and uncertainty are likely to persist for the remainder of the year. We expect US tariffs to be higher than in previous decades, though lower than initially announced on ‘Liberation Day,’ and we expect US-China trading relations to gradually improve. These combined effects would likely cause a mild slowdown in the US economy, although the extension of tax cuts and deregulation could provide a tailwind. Disinflationary pressures in Europe and China should free governments and central banks to stimulate their domestic economies.
- Diversification: We believe it’s important for investors to diversify across geographies and asset classes as the uncertainty continues. We find non-US assets attractive and think they will outperform throughout the remainder of the year.
- US equities: After an impressive run, US equities look particularly exposed due to elevated valuations. We favour low volatility, quality, and high dividend factors within the US while limiting exposure to mega-cap names.
- Chinese policy: Policymakers are helping household consumption in the country and supporting capital expenditure (CAPEX) in private enterprises. These measures could lead to outperformance of China's economic growth relative to the rest of the world. This is likely to benefit investors in Chinese equities.
- European markets: Europe should benefit from greater fiscal spending, an improving consumer backdrop, and further rate cuts from the ECB. The region would also receive an economic boost from Germany’s splurge on defence and infrastructure spending.
- UK stocks: In the UK, stocks have attractive valuations and consistently high dividend yields. This market has a heavy weighting in financials, which is likely to fare well as mortgage lending improves and interest rate curves steepen.
- Fixed income: Given the uncertainty and tight valuations, we are cautious around risk-taking. Following heightened policy volatility and an uncertain US fiscal outlook, we prefer ex-US global bonds.
- Alternative assets: We are defensive on this sector due to downside growth risks, high equity valuations, and benign capital markets activity. Within this sector, we see potential in private debt and hedged strategies versus private equity.
This is based on geopolitical breakdown, where US trade policy triggers reciprocal tariffs from other nations, and limited deals are negotiated. There could be a significant rupture of relations between the US and China.
- The US would likely enter a recession: Global growth could experience a significant slowdown, while tariffs elsewhere push up prices outside of the US. Geopolitical tensions could escalate further with imports to the US falling significantly.
- We would favour non-US assets. In equities, we would favour the defensive area, especially non-US utilities and telecoms. For fixed income, we see potential in non-US sovereign debt, while in alternatives, distressed debt and special situations offer attractive entry points. Hedged strategies and gold are also preferable.
- Gold is seen as a 'safe haven'. Although gold can be volatile, central banks have been adding to their gold reserves as they seek to reduce their reliance on US dollar assets. We see little reason to think central bank demand for gold fades materially. Physical demand for gold in the US and China has been strong, too, and more recently, ETF demand has also improved. We believe it could provide diversification benefits to portfolios.
This is based on a reprieve from the trade war and a policy pivot from the US administration, moderating tariffs and immigration policy while focusing on more pro-growth policies.
- Normalisation of trade policy: A partial normalisation of trade policy would result in an incomplete return to the pre-2025 state. The growth outlook would improve materially outside of the US and offset a mild US slowdown. US-China relations improve.
- Asset classes we like: In this scenario, we would be supportive of value stocks in equities and US investment grade and US high yield in fixed income. In the area of alternatives, private equity, real estate equity, and collateralised loan obligations (CLO) equity could prove favourable.
Explore Asia-specific outlooks from our on-the-ground experts
2025 Midyear Investment Outlook – Asia Fixed Income: Emerging Markets
Combining our outlook on both bond prices and exchange rates, we are more positive on Asia emerging market local currency bonds over hard currency in 2H 2025.
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2025 Midyear Investment Outlook – Asia Fixed Income: High Yield
We still expect income to be the core driver of Asia high yield bond returns going into 2H 2025. Find out more.
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2025 Midyear Investment Outlook – Asia Fixed Income: Investment Grade
Asia investment grade credit is expected to remain resilient in 2H 2025, supported by accommodative regional central bank stances and solid fundamentals across major economies.
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2025 Midyear Investment Outlook – Asia Equities
As global uncertainty continues into the second half, trade policies and currency movements remain key influences on market sentiment for Asia equities. Find out more.
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2025 Midyear Investment Outlook – China Equities
Amid the macro uncertainty, we believe navigating China equities requires a disciplined and selective approach going into 2H 2025. Find out more.
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