Investment Monthly
New Rules
04 July 2025
Key takeaways
- Investors need to follow “New Rules” in an investment landscape defined by an end of US exceptionalism and volatile market narratives – with growth cooling, equity performance broadening out, and a weaker dollar
- Dollar weakness boosts EM stocks and fixed income, with stronger EM currencies likely to boost the appeal of local-currency bonds
- A regime of “deficits forever” and a cautious Fed could keep US Treasury yields sticky. Investors should seek out alternative portfolio diversifiers
- Portfolio resilience can be built with “safety substitutes” including European fixed income and selective high-quality public and private credits
Macro Outlook
- As US exceptionalism fades, a regime of G-zero economics is emerging – characterised by a fragmentation of global leadership, along with supply shocks, constrained growth, and high and volatile inflation
- Our base case is that tariffs settle close to current levels, but with high policy uncertainty risking a sharper downturn and elevated market volatility
- The world’s premium growth opportunities lie in emerging markets. US growth is “catching down” to other developed markets
- Trade disruption is likely to have diverging effects on Asian economies while macro policies should support growth
Policy Outlook
- The Fed is in “wait and see” mode. We expect some further gradual policy easing later this year, as rising growth concerns offset inflation worries
- The ECB policy rate should move into accommodative territory. German fiscal stimulus is likely to support growth in 2026
- Growth concerns, benign inflation, and recent USD softness aid the case for more monetary easing and fiscal support in EM Asia, but policymakers are likely to remain agile and cautious
- Further targeted policy support is expected in China, though the US-China trade truce eases growth concerns. Consumption, technology & innovation, and housing are likely to remain key areas of policy focus