Global Asset Allocation: The View From Europe

Outlook: New World Order

• We have a more cautious view as broadly resilient global growth and receding inflation trends could be at risk to increased policy uncertainty, particularly around trade threats.
• US growth exceptionalism leaves it better positioned should trade disputes escalate, with other major economies, particularly Europe and China, more exposed with growth already tepid.
• Central bank divergence could widen on impacts of trade, with the Fed in a position to wait on impacts, whilst other central banks, including the European Central Bank, the Bank of England and the Bank of Canada, advance easing as risk tilts towards slower growth.
• Key risks to global markets include elevated threat of trade wars impacting growth and reaccelerating inflation, central bank missteps and geopolitical tensions.
   

Themes Driving Positioning

Big Bet!

What do digital advertising, online retail, electric vehicles and software have in common? Seemingly not a lot, other than a combined USD 20 trillion. The ‘Mag 7’, as they are known, are a heterogenous group of companies that have dominated global equity markets. Their combined market cap is now multiple times larger than other parts of the market and any other country outside the US. Whilst eye-catching, their profitability has also been unprecedented in helping justify valuations. However, the recent news around DeepSeek, a Chinese artificial intelligence (AI) start-up, highlighted a common thread across this otherwise disparate group: billions in capex spending. Their enormous bet on AI technology to sustain their dominance will be increasingly scrutinised by investors looking for assurance these big bets pay off. Against this backdrop, we favour better-priced value stocks that should benefit from a broadening market and improving earnings.

Deal or No Deal?

As promised, President Donald Trump acted swiftly on using tariffs as a negotiating tool to draw counterparties to the table. The tariffs have been introduced largely on the premise of creating fairer trade policies and gaining border security protections. For the most part, the more aggressive stance has worked with trade partners acting quickly to make a deal or at least delay tariffs. The stakes are high for those targeted whose economies rely more heavily on trade. And whilst the US comes at these on a stronger economic footing and with less trade vulnerability, it will not be immune to potential consequences if this turns into a prolonged trade war, particularly with inflation at higher levels this time around. With the increased uncertainty, As promised, President Donald Trump acted swiftly on using tariffs as a negotiating tool to draw counterparties to the table. The tariffs have been introduced largely on the premise of creating fairer trade policies and gaining border security protections. For the most part, the more aggressive stance has worked with trade partners acting quickly to make a deal or at least delay tariffs. The stakes are high for those targeted whose economies rely more heavily on trade. And whilst the US comes at these on a stronger economic footing and with less trade vulnerability, it will not be immune to potential consequences if this turns into a prolonged trade war, particularly with inflation at higher levels this time around. With the increased uncertainty, we moderated our equity exposure during the last few months as risk is increasingly tilted to the downside at current valuations. during the last few months as risk is increasingly tilted to the downside at current valuations.

 

For a region-by-region overview, see the full report (PDF).