Investment Monthly
The new uncertainty trade
03 April 2025
Key takeaways
- Increased policy uncertainty has boosted market volatility, which is consistent with our view of markets ‘spinning around’ in 2025
- We think market leadership can continue to shift to previously lagging sectors and regions, but performance could be ‘stop-start’
- The US dollar is vulnerable to further signs of a weaker US economy. This bodes well for EM local currency stocks and bonds
- Diversification is a key theme. Alternatives, such as private credit, hedge funds and defensive real assets can build resilience into portfolios. Gold has been a good hedge against uncertainty
Macro Outlook
- Our baseline macro scenario is for growth convergence in major economies, moderately above target inflation, and gradual rate cuts
- However, policy uncertainty has risen to extreme levels, creating the risk of materially weaker growth
- In China, policy support measures for households, signs of stabilisation in the property market, and expansionary fiscal policy should help mitigate rising external risks
- Rising trade concerns are likely to have diverging effects on Asian economies while macro policies should be supportive for growth
Policy Outlook
- The Fed is in “wait and see” mode. We expect gradual easing as the FOMC attempts to balance below trend growth and above target inflation
- A sizeable shift in fiscal policy in Germany should boost growth in 2026. The ECB is expected to cut rates twice more this year
- Rising global trade uncertainty may have an uneven impact across Asia. The RBI should ease, while a weak currency constrains Bank Indonesia
- Chinese policymakers announced a new 30-point plan to boost household consumption, including measures to stabilise the equity market. This should lessen downside growth risks, and ease deflation concerns