Summary with Investment Specialist Ritu Vohora

2025 has been characterized by a constantly shifting market narrative, dominated by US policy and changing market leadership. Whilst we’ve seen a de-escalation in tariff threats, the scars may be more permanent.

Investing in a post-globalization world requires investors to re-think asset allocation, as favored assets become less attractive, and new opportunities emerge.

Heading into the second half, global growth and inflation face potential challenges from disruptive trade policies. Trade disruptions have triggered a supply shock to the US and a demand shock elsewhere – adversely impacting confidence and activity.

Despite a pause in higher reciprocal tariffs, near-term growth is projected to slow both in the US and Europe. However, fiscal policy - from tax cuts in the US, European defense and infrastructure spending, and Chinese stimulus could provide an offset over the medium-term.

The Fed is balancing upside risks to inflation against a weakening economy and is expected to proceed cautiously. Other developed market central banks have more latitude to cut, given lower inflationary pressures. In this environment, diversification is key.

Inflation-protected bonds and real assets, like real estate and commodities, could help offset inflation risk.

Equity markets are likely to continue to broaden, with opportunities expanding both within the US and across other regions. Value stocks - especially in energy and materials - offer more attractive valuations than growth stocks and may do better in an inflationary environment. Select emerging markets, like India, Indonesia, and Argentina, also present attractive opportunities.

Higher trend inflation and wide fiscal deficits are likely to push bond yields higher – weakening the outlook for developed market sovereign bonds. However, credit sectors including high yield and select emerging markets offer meaningful diversification and yield.

The global economic landscape is shifting. Now is the time to build resilience in portfolios to both negative and positive tail events, have a willingness to challenge old assumptions, and use volatility as opportunity.