Will German-led Fiscal Reforms be Transformative for Europe?
Yes, in response to weak growth and a changing defence landscape, taking off the fiscal straitjacket should catalyse a more growth-supportive economic environment within Europe.
Authored by: Thomas O'Mahony
Should Investors Underweight Euro Area Equities Given Trade Wars, Elections, and the Weak Growth Outlook?
No. All three factors have weighed on euro area equity and currency markets to some extent in recent months, but we recommend continuing to hold euro area equities at benchmark weights.
2025 Outlook: Public Equities
We expect developed markets value and small-cap equities to outperform, given our economic views and their steep valuation discounts. Regionally, we believe US equity performance will not match the level set in 2024, allowing European, Japanese, and emerging markets equities to perform more in line with broader developed markets. Within emerging markets, strong Indian equity gains should moderate, while we doubt Chinese equities will collapse. At the same time, we expect long/short equity strategies will perform better than typical.
2025 Outlook: Credit Markets
We expect liquid credit returns to decline due to low credit spreads and anticipated Fed easing. Direct lending returns should moderate but continue to outperform their liquid counterparts. Meanwhile, insurance-linked securities will continue to benefit from strong demand, and increased transaction volumes should support both specialty finance and credit opportunities managers. In emerging markets, currencies should become a tailwind for local bonds.
Will Japanese Equities Outperform Global Equities in US Dollars?
No, we do not expect Japanese mid-/large-cap equities to outperform their global peers despite some supportive factors, such as Tokyo Stock Exchange (TSE) reforms and inflows from security investment schemes.
US Election Anxiety: Keeping Calm Amid Political Uncertainty
Markets have been jittery as the US presidential election approaches. The macro backdrop is shifting, with slowing economic growth and ebbing inflation meaning a cycle of monetary easing beckons. At the same time, elevated valuations for a variety of assets are causing investors to reconsider narratives around themes, such as AI investment, and consider asset allocation tweaks. Investors should resist positioning portfolios for any one political outcome and remember that increased market volatility around elections is common. In the following report, we discuss our views on five common election-related narratives in the marketplace today.
Should Investors Alter Portfolios Considering the Equity Market Rout?
No, not right now. We continue to believe investors should: (1) keep equity allocations aligned with broad policy targets; (2) maintain modest overweights in less expensive areas within equities, such as developed markets value and small caps; and (3) maintain a modest overweight in long US Treasury securities within bond portfolios.
Is the French Election Another Existential Risk for the Eurozone?
No, we do not believe that the French election poses any immediate threat to the Eurozone, in contrast to several prior Italian parliamentary and French presidential elections.
Labour’s Big Win to Result in Policy Evolution Rather than Revolution in the UK
The Labour Party secured a sweeping victory in the UK general election, returning them to power for the first time since 2010.
European Central Bank Cuts Interest Rates by 0.25%
On June 6, the European Central Bank (ECB) cut its main interest rates by 0.25%, becoming the first major developed markets (DM) central bank to cut rates.