Risk appetite for equities holds firm, yet diversification is paramount.
As tariff-related risks ease, markets are stabilising and economic prospects are constructive for risk assets. Nevertheless, a balanced asset allocation remains essential. Diversification – across both asset classes and countries – is a wise approach to absorb potential market shocks and face the summer with confidence.
Transient inflationary pressure
After a turbulent first half of the year driven by a policy volte-face from the Trump administration, the de-escalation of commercial threats offers hope for a calmer second half.
Markets can now refocus on macroeconomic indicators. Despite a slowdown in global growth, a 2.7% expansion in 2025 remains supportive for risk assets. This backdrop will, however, coincide with temporary inflationary pressures, linked to expected tariff increases this summer. Once price pressures diminish, the Fed is likely to begin easing monetary policy, with the first rate cut anticipated this autumn. On the other hand, rising US deficits may keep long-term yields elevated.
These prospects remain positive, with trade agreements expected in the coming months. However, the end of the tariff suspension, planned for 9 July, could still bring macroeconomic surprises to watch for as we head out of summer.
Stay invested, stay diversified
Until inflation and employment data later in the summer reveal the impact of tariffs on the economy, a diversified allocation across assets and regions remains the most judicious approach.
In a balanced equity bucket, we favour high-quality companies with strong earnings visibility. Large-cap tech firms continue to be a main conviction, driven by secular growth and dominant market positions. The defence sector also merits attention: following the NATO summit, allies committed to spending 5% of GDP on defence and security by 2035, which remains a clear structural growth driver.
In the current low-rate environment, our fixed-income strategy emphasises carry opportunities in high-yield bonds, alongside structured products that offer attractive returns while limiting equity market volatility exposure. Given the wide performance dispersion, selective long/short credit strategies, which target the strongest issuers while hedging weaker ones, offer an effective way to enhance risk management.
Last, as a portfolio diversifier, we hold a significant position on gold, which is poised to benefit from a persistently weak US dollar and anticipated rate cuts.
The opinions expressed herein are correct as at 4 July 2025 and are subject to change without notice. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.
