Monthly Asset Allocation Outlook

Our stance on US equities remains neutral. Despite relative underperformance so far this year, we still see upward potential for the US market — although growth expectations have been slowing. Consumer spending is holding up and the labour market remains tight. Improving relative valuations for US growth stocks and the sector composition of US benchmark indices may well reverse current underperformance if earnings for large-cap tech companies come through as the year progresses. Considering the high levels of uncertainty stemming from the Trump administration’s policies, we are comfortable with our neutral view.

We still think that a neutral view on European equities is warranted. The recent outperformance of Europe has been driven by depressed expectations and factors such as talks of increased fiscal and defence spending as well as developments in Ukraine. While there are tailwinds, including attractive valuations, improving earnings revisions and improved sentiment, there is uncertainty about their staying power. In addition, we still expect tariffs to impact Europe. We foresee some degree of volatility and noise ahead, informing our neutral stance.

Our neutral take on Japanese equities remains unchanged. The recent increase in bond yields and a stronger yen have had a negative impact on equity markets, even if underlying improvements in corporate governance and structural reforms continue to support the long-term outlook. We do not currently see a compelling catalyst for outperformance in the region, which leads us to maintain our neutral stance.

We maintain a neutral stance on emerging markets (EM) equities. While Chinese equities have recently outperformed on the back of the country’s stimulus measures, a better risk-on tone and the momentum created by DeepSeek headlines, we think tariffs will likely affect stocks’ performance ahead. We anticipate increasing volatility over the coming months, which may present opportunities for tactical asset allocation.

We maintain our underweight stance on US rates. The US labour market remains strong and inflation has been firm at current levels, making it less likely for the US Federal Reserve to cut rates from here, with market pricing likely having gone too far. The anticipation of tariffs and their impact on inflation also contributes to our underweight stance on US rates.

Our stance on European rates continues to be overweight. The European economic outlook appears more fragile with respect to the US, suggesting more potential for rates to decline across the curve, supporting bond prices. In addition, the threat of tariffs implies more downside risk to growth in Europe, which reinforces our overweight view on European rates.

We maintain a neutral view on Japanese rates. The Bank of Japan’s normalisation cycle is expected to be prolonged; however, the pace and extent of the tightening remain somewhat uncertain, informing our neutral stance.  

We maintain a neutral stance on investment-grade credit. Tight valuations imply more scope for widening and point to a need to be tactical in credit allocations, taking advantage of spread volatility to upgrade our view at better levels.

We maintain a neutral stance on high-yield credit. Overall, fundamentals are generally solid and we do not expect weakness here. It remains the case that very low-rated segments of the US high-yield market appear distressed, with high leverage and no access to the primary market. We expect our view to remain tactical, looking to capitalise on potentially compelling bottom-up sector and security selection opportunities.

We maintain our neutral stance on EM debt. The combination of higher tariffs, a strong dollar and elevated geopolitical uncertainty creates a challenging environment for both EM fundamentals and demand, informing our neutral view. 

We closed our tactical underweight view on oil. Energy markets remain highly sensitive to geopolitical events and policy changes, which could lead to significant price volatility. As such, we went back to a neutral stance, as we continue to monitor closely developments in the Ukraine conflict.

We moved from an overweight to a neutral stance on gold given recent price movements, driven by extreme sentiment. However, we still believe there are compelling reasons for gold to continue trending upwards. If so, we would plan to reengage on meaningful price volatility.