Global Investment Outlook Q2 2025
Key Highlights:
- Structural forces such as advancements in artificial intelligence (AI), supply-chain reconfigurations, and fiscal policy pivots in Europe and China are reshaping the global investment landscape, with implications for equity, credit and alternative asset classes
- The long-standing dominance of US capital markets is being challenged by de-dollarisation, evolving trade policies and shifting global capital flows, with investor focus redirecting to European and emerging markets
- Amid heightened market volatility and policy uncertainty, diversification and selectivity have proven valuable, elevating the importance of quality equities, high-quality credit, and alternatives such as hedge funds and private credit
From US dominance to global diversification
Shifts in global capital flows are challenging the long-standing dominance of US markets, as evidenced by US equity underperformance and a weakening of the dollar’s traditional role as a safe haven. These developments reflect broader structural changes, including the evolution of AI, supply-chain reconfigurations, and policy pivots in Europe and China.
While uncertainty remains a defining feature of the current market regime, we see potential opportunities in regions with more favourable valuations and policy flexibility, such as Europe and select emerging markets. High-quality credit and alternatives are increasingly important for portfolio resilience, while active currency management is becoming more critical in light of the dollar’s diminished appeal. Above all, flexibility in asset allocation takes on added value as investors navigate this evolving landscape.
Top of mind
Our Q2 2025 Global Investment Outlook explores pressing topics such as where to look in pursuit of portfolio resilience, the potential for continued outperformance from emergingmarket and European equities amid trade-war vulnerabilities, the unusual slide of the US dollar amid broader market weakness, and the case for the end of US exceptionalism.
Promising but unequal potential in European credit
Prospects for the eurozone economy are improving, boosted by increased defence spending alongside Germany’s fiscal stimulus. This supports prospective resilience in European corporate credit, with strong fundamentals and limited exposure to US tariffs. Beneficiaries of increased spending differ across sectors, as do those more at risk from tariffs. This aligns with our preference for a selective approach. We think banking, telecommunications and utilities present promising opportunities, while sectors such as automotive and construction warrant caution due to their heightened exposure to external risks.
Evolution of the AI story
The emergence of cost-efficient AI models like China’s DeepSeek has reshaped the technology landscape, reducing compute costs and accelerating AI adoption. Initial market reactions were extreme and widescale via a sell-off in ex-China IT stocks, but we think the impact is much more nuanced – the lower cost of computing should benefit the software sector, for instance. Within China, the advances certainly create a large growth runway for internet/cloud platforms. Increased AI adoption can also benefit device manufacturers and present opportunities elsewhere in emerging markets. Examples include the monetisation of AI via superapps and more demand for IT services, such as those provided from India.
A deep dive into the quality factor
The quality factor, encapsulated by the three pillars of profitability, consistency and safety, offers impressive resilience alongside long-term growth potential. Quality equities have demonstrated outperformance during economic contractions, while seeing better results than other defensive allocations when the market rallies. This provides stability in volatile markets and enhances quality’s value across the business cycle, making it a valuable component to consider within multi-asset portfolios. A sector-neutral approach and active management can help mitigate biases and deliver portfolio objectives.