Investment Monthly
Rate cut rally
07 October 2025
Key Takeaways
- As US exceptionalism fades, and amid relatively high US stock valuations, global stock market leadership is expected to broaden out, with the potential for spikes in volatility
- The US dollar remains over-valued and may face continuing weakness, which should be an ongoing catalyst for emerging market assets
- Emerging and frontier markets benefit from strong structural tailwinds, supporting selective exposure to both stocks and local currency bonds, including, for example, India fixed income and pan-Asian equities
- Portfolio resilience can be built with selective high-quality investment grade credit, hedge funds, multi-factor strategies, and real assets
Macro Outlook
- Tariffs and policy uncertainty are weighing on US activity, but there is some offset from AI-related capex spending. Jobs growth is likely to be weak in the coming months amid a clampdown on immigration
- We expect US growth to moderate to 1.5 per cent, catching down to other major developed economies. Tariffs pose upside risks to inflation
- In China, we expect resilient but uneven growth with tariff headwinds offset by continuing policy support to rebalance and reflate the economy
- We think premium growth opportunities lie in emerging and frontier markets, with economic power shifting to Asia and the Global South
Policy Outlook
- After September’s rate cut, further easing is likely to be gradual as the US Fed seeks to balance above-target inflation with labour market risks
- After eight rate cuts, eurozone inflation is close to target and policy is in neutral territory, with the ECB taking a “wait-and-watch” stance
- Benign inflation leave EM Asia central banks with scope to ease policy further, alongside fiscal and industrial supports to offset trade headwinds
- Supportive macro policy in China is focused on structural rebalancing – mainly via supply-side reforms to restore corporate profits, and boosting consumption on the demand side