The Big Picture: Global asset allocation 2025 Q3
We think the global economy will accelerate over the next 12 months as central banks ease and real wages grow. However, we think some market valuations understate the risks to the US economy. We continue to embrace risk with caution and emphasise non-US assets within our Model Asset Allocation. We reduce equities (to Underweight) and REITS (but remain Overweight), while adding to government bonds and high yield credit (taking both to Neutral). Seeking balance, we maintain maximum exposures to both bank loans and commodities.
Model asset allocation
In our view:
- Commodities should benefit as the global economy improves. We stay at the Maximum.
- Bank loans offer an attractive risk-reward trade-off. We stay at the Maximum.
- Real estate (REITS) have rebounded but may benefit as rates fall. We reduce but stay Overweight.
- Government bond yields have risen. We increase to Neutral (and lengthen duration beyond Neutral).
- Corporate investment grade (IG) has a similar profile to government bonds. We remain at Neutral.
- Corporate high yield (HY) spreads are tight but the improved growth outlook helps. We boost to Neutral.
- Equities have rebounded and we reduce to slightly Underweight (and remain Underweight the US).
- Cash will be disadvantaged as the global economy accelerates. We remain at Zero.
- Gold may be helped by a weakening dollar and geopolitics, but is expensive. We remain at Zero.
- Regionally, we favour Europe and EM and seek JPY exposure.
- US dollar is likely to weaken and we maintain the partial hedge into JPY.
Our best-in-class assets (based on 12m projected returns)
- China equities
- Eurozone REITS
- European bank loans
- EM government bonds
Based on annualised local currency returns. Returns are projected but standard deviation of returns is based on 5-year historical data. Size of bubbles is in proportion to average 5-year pairwise correlation with other assets (hollow bubbles indicate negative correlation). Cash is an equally weighted mix of USD, EUR, GBP and JPY. Neutral portfolio weights shown in Figure 3. As of 30 May 2025. There is no guarantee that these views will come to pass. See Appendices for definitions, methodology and disclaimers.
Source: Credit Suisse/UBS, ICE BofA, MSCI, S&P GSCI, FTSE Russell, LSEG Datastream and Invesco Global Market Strategy Office
Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
