Gold prices were muted late last week, pressured by a stronger dollar and a subdued mood on Wall Street.

“Gold has undergone a meaningful sell-off in recent weeks, but we believe the move has been driven more by a repricing of short-term macro fears than by any deterioration in the metal’s medium-term fundamentals. In our view, the market has largely been recalibrating expectations around a 2022-style scenario: a sharp inflationary shock, an aggressive central bank response, and a sustained rise in both nominal and real interest rates. That framework, however, does not fully reflect the current environment,” says Lorenzo Portelli, Head of Cross Asset Strategy, Head of Research at Amundi Italy, Amundi Investment Institute.

The recent correction was amplified by technical factors. In particular, the unwinding of ETF positions accumulated by retail investors and CTAs in March exacerbated the downside move and added momentum to the decline. As often happens in crowded trades, once prices began to reverse, the selling pressure became self-reinforcing. Yet this type of move typically says more about positioning than about a lasting shift in the fundamental outlook.

“We do not believe the current economic backdrop is comparable to the one that prevailed four years ago. At that time, massive fiscal support across several regions, combined with post-pandemic supply disruptions, led to a sharp acceleration in core inflation well above central bank targets. That forced monetary authorities to react aggressively in order to anchor long-term inflation expectations.

“Today, the picture looks different. Core inflation remains more subdued and better contained, reducing the need for central banks to pursue an even more hawkish stance. In our view, the inflationary impulse triggered by the energy shock is likely to prove temporary rather than persistent.

“Looking ahead over the next 12 months, we remain constructive on gold and see potential for prices to move toward $5,500,” he says.

“Our positive outlook is based on several structural supports. First, central bank demand is likely to remain strong, especially among emerging market authorities that continue to diversify reserves away from traditional currencies. We do not see this trend reversing anytime soon. Gold remains a strategic asset for reserve managers seeking to reduce dependency on the US dollar and enhance portfolio resilience.

“Second, mine supply is unlikely to keep pace with long-term demand trends. Structural supply constraints should continue to limit growth in new production, while official sector buying remains an important source of support. Third, rising global debt levels are becoming an increasingly important backdrop for gold. Ballooning sovereign and private leverage reinforces the appeal of hard assets and strengthens gold’s role as a store of value.

“In the near term, some central banks may choose to use part of their gold holdings tactically to defend their currencies amid heightened volatility, including risks stemming from geopolitical tensions in the Middle East. While such actions are possible, they should not be interpreted as a sign of a structural shift away from gold. Rather, they reflect short-term policy management in a more uncertain environment.”

Gold remains an effective protection against systemic risk, currency weakness, and policy uncertainty, he adds.

“Ultimately, we continue to view gold as a valuable safe-haven asset. It is not a universal hedge against every market shock, but it remains an effective protection against systemic risk, currency weakness, and policy uncertainty. With prices already down roughly 15% from recent highs, much of the near-term bad news appears to be reflected in valuations. As a result, the downside linked purely to rate fears now looks more limited than it did at the start of the correction.”

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Vincent Mortier

Since the start of the year, some of the key convictions highlighted by Amundi, Europe’s largest asset manager, have been playing out and some trends have accelerated.

According to Vincent Mortier, Group CIO, Amundi,” We are witnessing a regime shift characterised by heightened policy uncertainty and a distinct break in the international order. These key themes were highlighted at the Davos World Economic Forum and confirmed at the Munich Security Conference.

“Tariffs remain a key tool for the redesign of the new order. The recent Supreme Court ruling against Trump’s emergency tariffs introduced an additional layer of uncertainty to the policy landscape.

“All these developments confirm that the overall geo economic environment is in transition. President Lagarde’s mention in her speech of the ECB’s new repo facility for central banks outside the euro area signifies how policymakers are thinking about the rising importance of geoeconomics.

“We are clearly entering a more complex market equilibrium, where policy, including trade policy, geopolitics, and capital allocation are as critical as the economic cycle itself. With growth proving more resilient than initially expected and corporate profitability remaining robust, markets have remained well sustained.

“However, significant rotations are underway across countries, sectors, and individual stocks as the environment adjusts to the ongoing regime shift.

“We think diversification and flexibility will continue to be key in enhancing portfolio resilience and long-term returns.

“We see a late cycle environment continuing this year and therefore maintain a moderate risk on stance. Within this stance, we expect a rotation towards real economy sectors such as industrials and dispersion across regions and asset classes.

“Secondly, high valuations of risk assets constrain our ability to raise our risk stance. Valuations alone, however, are unlikely to trigger a major correction. Instead, triggers would more likely arise from liquidity tightening or a deterioration in credit conditions.”

In a fast changing world, please see the attached paper for more details, with contributions also from Monica Defend, Head of Amundi Investment Institute and Philippe d’Orgeval deputy group CIO as they relook at their key investment convictions.

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Alban de Faÿ, Head of Sustainable Responsible Investment processes for Fixed Income said: “The Green Bond Market has experienced significant growth over the past fifteen years, reaching €2,221 billion with new green bond issuance amounted to €442 billion in 2024. It has now become well-established, mature, and offers a wide range of opportunities we are committed to explore and invest in, on behalf of our clients.

“With our green bonds funds, we aim to finance the energy transition by investing in green bonds with positive and measurable impact on the environment and delivering returns throughout the different economic cycles. With this report, we aim to provide transparency regarding these funds, illustrating what we finance and the environmental benefits achieved.”

“Our impact investing philosophy is founded on three core pillars, which form the basis of our green bond strategies:

1. Intentionality: investing with a clear environmental objective
2. Measurability: tracking avoided CO₂ emissions
3. Additionality: increasing the net positive impact generated by the project or issuer’s activities”

Key highlights of Amundi’s Green bond strategies

• €5.5 billion invested in green bond strategies (as of 31/12/2024)
• +2,400 Green, Social and Sustainability bonds analyzed in Amundi’s proprietary database
• An average of 322 tons of CO₂ emissions are avoided per €1 million invested across our three open-ended funds.
• Main projects financed include renewable energy, green buildings, clean transport, energy efficiency and sustainable land and water use
• All funds are SFDR Article 9 and carry demanding labels such as Greenfin (France) and Towards Sustainability (Belgium)

———-

Notes:
[1] No 1 European asset manager based on global assets under management (AUM) and the main headquarters being based in Europe Source: IPE “Top 500 Asset Managers” published in June 2024, based on assets under management as at 31/12/2023

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Vincent Mortier

Mounting concerns over large US fiscal deficits, along with consumers’ inflation expectations have started moving the markets. The issues around fiscal sustainability were further aggravated by discussion around the passing of the President Trump’s Big Beautiful Bill, the renewed interest in fiscal expansion in Europe (including German borrowing plans) and Japanese debt auctions according to Amundi in its monthly ‘Global Investment Views’.

Vincent Mortier, Group Chief Investment Officer at Amundi said, “Looking ahead, we could see some signs of weakness as markets start to focus on fiscal risks and tariffs. The big question is whether the allure of US assets is diminished by the fiscal issues, the challenge to the status quo by the US administration’s policies, and how that could affect US assets.

“We could very well see these old patterns changing in the future, but it is a long-term trend, not something that will happen within a short time frame. For now, trust in US institutions and their credibility remains intact – it may be questioned at various stages though.

“From an economic perspective, we see few themes playing out. We see economic activity decelerating in the US, with this year growth projections unchanged at 1.6%. Economic activity will be volatile due to net trade and consumption weakness. In the euro zone, we see credit growth and a continuation of improvement in the manufacturing sector. The defence and infrastructure push is likely to have positive effects on growth from 2026. The main question is how this will be financed.

“The impact of US tariffs on underlying inflation will be gradual. The tariffs’ impact on US inflation has been muted, and we haven’t seen higher consumer prices so far. But we are monitoring whether these are passed on to consumers and what impact they could have on corporate margins if companies are unable to pass on the costs. In the eurozone, the inflationary backdrop is slightly different, and inflation seems on track for deceleration.

“International trade negotiations will get increasingly difficult. The latest round of US-China talks in London indicated that China will remain a tough negotiator. Erratic trade policies may affect the appeal of US assets. Although section 899 (which we have always believed was a negotiation tactic) of the Big Beautiful Bill has now been scrapped, such provisions tend to increase uncertainty and volatility in the markets.

“We upgraded growth projections for some EM such as Brazil (2025), Mexico (2025), and India (2025 and 2026). In China, some recent data has been benign for example on retail sales. However, we would like to see a more sustained trend to convince us to upgrade our growth expectations. A boost to durable goods consumption from government subsidies should be supportive, but once the effect fades, this would weigh on growth. We stick to our projection of 4.3% for this year.

“We remain marginally positive on risk assets, with increased valuation discipline. Growth-inflation mix is less of a headwind, and we do not see a corporate earnings recession. But fiscal direction and the potential economic impact of uncertainty on tariffs and of geopolitical conflicts point to high volatility.”

Monica Defend, Head of Amundi Investment Institute and Chief Strategist added that “Our main investment convictions centre around the fact that debt and fiscal worries are rising, but curve steepening opportunities persist in fixed income. In an overall flexible stance, we moved to neutral on EU. Carry is attractive in corporate credit, but we acknowledge the bifurcation between high and low rated companies and large and smaller ones. We stay positive on investment grade, particularly through EU banks.

“Equities in US have been resilient, ignoring negative scenarios. Valuations have risen to rich levels, whereas those in Europe and Japan are close to their averages. As we enter into H2, the important point is to see which businesses are able to pass on the costs to consumers and preserve margins. Hence, valuations and quality both will become important.

“Emerging market at a time of strong growth and a weakening dollar. Volatility from international trade may be tackled by exploring domestic ideas. China presents a nuanced case where recent domestic data has been strong, but we stay neutral on equities, waiting for sustained improvement. For now, we explore other parts of Asia, LatAm and emerging Europe for equities and credit.

“In multi asset, we do not expect a recession in the US, and Europe, Japan and the EM world also show reasonable growth. But risks such as excess valuations, inflation resurgence, fiscal deficit and geopolitics remain. We rebalanced our stance slightly in duration and stay positive on risk but are doing so with more safeguards.”

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Monica Defend

Emerging market equities are positioned to outperform developed ones over the next decade according to Amundi, Europe’s largest asset manager.

The US-China tech rivalry will particularly benefit India due to its growing start-up ecosystem and role as an alternative innovation hub, noted Monica Defend, Head of Amundi Investment Institute and Chief Strategist

“In this environment, equity investors will have to cope with greater trade protectionism and regional rivalry, delayed climate transition, and technological transformation in the next decade. We believe sector allocation will be crucial for investors, with Artificial Intelligence supporting IT and Healthcare, capital expenditure trends favouring Industrials over Consumer sectors, and deregulation policies benefiting Financials across different regions,” added Defend.

“We expect emerging market equities to outperform developed ones over the next 10 years, with variations across countries. While the outlook for Chinese equities has improved because Beijing’s policy support has restored some confidence to markets, their performance will depend on domestic policy measures and US trade policies. Our central scenario assumes fiscal support will offset the economic impact of the current tariffs on US imports from China, but these expectations will be tested if the US administration hikes them back towards their recent peaks.”

Indian equities continue to top the equity expectations scoreboard at 8.2% annualised returns, with robust earnings growth prospects outweighing stretched valuations. The Indian market appears better insulated from tariff pressures that are hitting Asian factory hubs like Vietnam and Indonesia.

Moreover, India is emerging as a beneficiary of the ongoing tech rivalry between the US and China. Multinationals looking to diversify their supply chains are turning to India as an attractive alternative innovation destination. India’s rapidly growing start-up ecosystem is also appealing to global investors looking for new growth opportunities. “Demographics and a rising middle-class further bolster India’s appeal,” said Defend.

The outlook for European equities is supported by improving earnings growth, relatively favourable valuation levels, and reforms to boost productivity and restore competitiveness – as detailed in the Draghi and Letta reports.

“Germany’s recent fiscal push could further drive the area’s appeal, beyond our 7.5% return expectation.

“The Pacific shares a similar positive outlook. Japanese equities are benefitting from improved corporate governance, driving higher shareholder returns. Moreover, the end of the country’s long battle with deflation should support further rerating of its equity market.”

Defend said, “At the sector level, Artificial Intelligence will continue to support Information Technology, followed closely by Healthcare, with the benefits gradually extending to other sectors. The democratisation of AI and rotation from ‘hyperscalers’ to ‘enablers’ in the software sector should help boost global productivity and long-term equity returns.

“Climate change and geopolitical dynamics will favour capital expenditures, benefiting Industrials more than Consumer Staples and Discretionary sectors. Energy, Materials, and Staples face the most negative impact from climate change and ESG considerations, while Utilities fare slightly better but remain below regional market averages.

“Policy changes supporting deregulation should improve capital efficiency and shareholder returns, particularly benefiting the Financial sector. This support will manifest differently across regions – through deregulation in the United States, unwinding of cross-company shareholding in Japan, and high shareholder returns in the Eurozone.

“For investors, this trend points to the need to seek opportunities in emerging markets, Europe, and the Pacific ex-Japan region.”

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China’s innovation strategy has become increasingly centralised.

With its rapid advancements in critical technologies, today, China is a formidable competitor to the developed West for global technology leadership. Innovation can take many forms, including process innovation in which China excels to leveraging its large and dynamic manufacturing base.

“However, this is not enough. Technological progress also hinges on a nation’s ability to develop and spread innovation, to boost aggregate productivity and potential growth. On this, China’s innovation strategy has become increasingly centralised, with the government favouring specific sectors and systematically cracking down on others,” noted Claire Huang, Senior EM Macro Strategist, at the Amundi Investment Institute.

“A dynamic private sector and decentralised approach are essential for new technologies to spread and become accessible, fostering progress. In this respect, the environment for Chinese companies and institutions to innovate has deteriorated recently.”

Today, the United States and its allies still hold significant advantages in capital markets and innovation ecosystems, while Chinese regulators crack down on the financial sector.

“For China to sustain its technological rise, it must prioritise final-demand innovation. While top-down, state-driven approaches have been effective in certain areas, they may not be sufficient to boost long-term growth. If China’s policies continue to stifle these market forces, its technological rise may plateau. China’s future success will depend on whether it can balance its top-down, state-driven approach with the bottom-up forces of consumer demand and commercialisation,” she noted in the attached paper ‘China in the race to technological leadership’.

“Ultimately, the key to long-term technological leadership lies in a nation’s ability to commercialise and spread its innovations. As the Soviet Union’s experience shows, technological discovery alone is insufficient for sustained growth.”

The United States hosts the world’s most efficient capital market that incubates pioneering innovators (from 0 to 1). Its single and unified market provides a fertile ground for enterprises to expand their scale with unparalleled ease.

China has developed the world’s largest and most cost-efficient manufacturing sector. With its intricate and highly developed supply chains, it empowers companies to innovate through execution and scaling (from 1 to 100). Numerous Chinese manufacturers, with their ‘can-do’ spirit, produce goods that others often find economically unfeasible to replicate.

“Investing in Chinese tech leaders via selecting ‘scaling champions’ is a viable approach, considering the high barriers to entry created by their cost efficiency.

“Although corporate China exhibits competitiveness across multiple domains, geopolitical tensions and deflationary pressures loom large, potentially undermining its profitability and long-term growth prospects. A strategic shift towards stimulating consumer demand is crucial to fighting deflation and sustaining China’s technological ascendancy. A failure to escape deflation may weaken the investment case for China tech,” added Huang.

Asia commands the lion’s share in the production of sophisticated information technology hardware. “Attempting to relocate these established supply chains to the United States would almost certainly result in diminished profit margins, reduced yield rates and escalated costs for downstream consumers. Companies with higher pricing power and gross margins are likely to better absorb the costs of reshoring, thus mitigating the risks associated with America First policies.”

In this respect, it is worth mentioning the very active subsidies programme from the Chinese government, at every level of an industry that the government considers as strategic (e.g., within the semiconductor industry, subsidies are given to the upstream companies such as chemical or semi-equipment providers, to midstream fabs and subsidies are given to the downstream buyers of the end products).

“This process around subsidies at every level to develop an ecosystem from scratch at an unprecedented speed and scale is now proven, which China’s policymakers have learned from their previous successful experience in low/mid-end manufacturing.”

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Marie Briere, Head of Investors’ Intelligence Academic Partnership, at Amundi Investment Institute has reviewed the effects of various reforms implemented in different countries to promote private retirement savings.

In this paper, she notes that tax incentives have proven to be an efficient tool to boost retirement contributions especially for the most ‘active’ savers, and older and wealthier individuals. Encouraging automatic contributions from employers to retirement plans may be more effective to support a wider range of individuals to invest on the long term. Providing information on retirement saving needs can also be beneficial.

The paper reports that under-saving for retirement is a major issue for many economies. Benartzi and Thaler (2013) have long diagnosed a ‘retirement savings crisis’. In the US, according to the National Retirement Risk Index, 39% of working-age households will not be able to maintain their standard of living in retirement.

In Europe, more than 19.8% of people aged 65 years or older are at risk of poverty or social exclusion, and women are particularly at risk.

To address these issues, many countries have introduced reforms to encourage private saving by providing tax incentives for voluntary pension contributions, automatic enrolment in pension plans, or trying to raise awareness about the importance of pension saving through retirement education material.

What are the lessons learned from these reforms and how do the various incentives affect saving?

Briere adds that evidence on the effectiveness of retirement information provision and financial education is mixed. Some experiments show that providing easily accessible information on one’s pension entitlements has a significant impact. In Germany, for example, a policy of systematic information on pension entitlements was introduced between 2002 and 2005, with annual letters presenting projected retirement incomes for all individuals over the age of 27. This reform led to an increase in tax-deductible retirement savings and a rise in earned income.

Getting people to save and invest for retirement is not an easy task and there are many reasons for that, she notes.

“Saving decisions are complicated: people don’t know how much to save, or how to allocate their assets for retirement. The easy solution is to leave the money in their bank account. Present bias and procrastination explain the lack of decisions. In addition, savers like to have access to liquid savings that they can use when needed. However, most retirement saving vehicles lock the money until retirement, unless there are exceptional reasons to withdraw.

“This raises the question of the optimal degree of liquidity offered by retirement savings plans. Tax incentives can have an impact on retirement savings. They tend to have a bigger impact on savers that are already ‘active’ savers or wealthy individuals. Incentivising automatic contributions from employers to retirement savings plans might be more effective to touch a wider audience of potential investors. Finally, the provision of information on retirement saving needs (perhaps combined with engaging ‘virtual reality’ tools) can be useful, especially if it is channelled through financial advisors or easily accessible digital tools such as robo-advisors.”

Read the paper.

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We expect three cuts to take the policy rate to 3.75% by the end of this year.

As the Reserve Bank of Australia decides on the next interest rate movement, Mahmood Pradhan, Head of Global Macro, Amundi Investment Institute looks at the state of current rate policy in the US.

“Recent inflation numbers in the US are in line with a short pause in the path towards the Fed’s target, yet bond yields have moved sharply higher since the Fed’s big cut. Medium-term inflation expectations – including FOMC member expectations – have moved higher but most of the increase in ten-year yields since the election reflects a rise in real rates,” according to Pradhan.

The Fed expects inflation about 30bp higher at the end of 2025 (at 2.5%), which implicitly incorporates some changes in policy under Trump, especially tariffs and fiscal easing. Market pricing is volatile and sensitive to monthly inflation outcomes.

“We expect three cuts to take the policy rate to 3.75% by the end of this year, as we believe the US economy will slow towards potential growth just below 2%, with higher real rates and tariffs weighing on growth.

“The US labour market is gradually rebalancing and wage growth does not pose a risk to inflation. Labour demand has been weakening, with fewer openings, lower quit rates, and an increase in temporary jobs. Labour cost indicators – hours worked, wages of new hires – are also moderating. And aggregate wage growth of 4 percent supported by productivity growth.

“Higher real bond yields will be a key headwind to growth and asset prices. The fiscal deficit – expected to be 6% of GDP this year – and associated debt issuance is the more likely reason for higher real rates, and higher term premia – the additional compensation investors require both for holding more debt and for higher inflation uncertainty.

“Breakeven inflation rates have moved marginally higher (inflation swaps indicate similarly). But real rates and term premia have moved more, with the latter at 10-year highs. This is more worrying.”

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Monica Defend

Markets have cheered any good news emerging in 2024 from the economy, corporate earnings and the political environment, although occasionally they were caught by surprise. Looking ahead, they will be driven by earnings momentum, a scenario of slowing US growth and rebalancing labour markets but not drastically weakening, according to Amundi, one of Europe’s largest investment managers.

“On the other hand, the Fed getting a bit more hawkish and Trump’s approach to trade along with the international response could create volatility. Outside the US, European growth and policymaking and China’s response to its domestic problems will drive the markets,” notes Monica Defend, Head of Amundi Investment Institute and Chief Strategist.

“In particular, we see the following factors as key drivers of the global economy:

• US growth resilient but still on a declining path and subject to uncertainty on Trump policies. Recent data are pointing towards better fundamentals in the economy, but the overall growth trajectory doesn’t change.
• European growth struggling to stay on course. Governments’ attempts to impose fiscal consolidation (France, Germany) are clouding the growth outlook. In Germany, we could see a loosening of the debt brake, but it would only be gradual and the economic impact would be seen from 2026.
• Uncertainty around the Fed, while the ECB is expected to be more dovish due to inflation falling faster. We have decreased ECB’s terminal rate expectations by 50bps to 1.75%, to be reached by July 2025. The Fed delivered a hawkish cut, meaning it has very close eyes on inflation.
• Chinese announcements are big on intent. While the main points revolve around expanding the fiscal deficit and boosting domestic demand, we would like to see details about how the government intends to do it.”

“We think liquidity in markets is ample, credit conditions robust, and the profit environment reasonable. But the most important factors preventing us from significantly raising our risk stance are valuations and risks to earning revisions. We keep a mildly constructive view.”

“We see cross-asset, modestly risk-on heading into 2025 with hedges in place. Economic growth in the US and Europe is reasonable, and inflation is slowing, painting a supportive backdrop for risky assets. We have strengthened our positive stance on US equities and turned constructive on Europe, while also maintaining a small positive view on the UK and Japan. We also continue to search for opportunities in emerging market (EM) bonds, in particular in the Czech Republic, South Africa, and Indonesia. To counterbalance this overall pro-risk allocation, we maintain a positive duration bias as a hedge against potential deterioration in the growth outlook. We have also added some equity hedges and keep gold as a diversifier.

“Fixed income as an asset class will be increasingly affected by uncertainty around fiscal and monetary policies. As a result, we maintain a tactical approach to duration in the US and Europe, where we continue to look for opportunities on the expected steepening of the yield curves. In the UK, we are positive but are monitoring the recent strong inflation and wage growth data, while in Japan bonds, we remain cautious. In the credit market, we continue to favour investment grade, in particular in Europe, where valuations look more attractive. In contrast, we are cautious on US High Yield.

“In equities, diversification is the name of the game, as concentration risk remains the top concern. In the US, we remain cautious on the mega caps and explore opportunities down in the capitalisation spectrum in companies that could benefit from a resumption in industrial demand and economic growth but where the valuations do not yet reflect this.

“We also think the rally broadening towards more US value, cyclical stocks will benefit from an uptick in economic activity. In Europe, we favour banks that are less sensitive to rate changes and have strong capital buffers vs. those more sensitive to rate reductions.

“Any dollar strength and rise in geopolitical risks will likely create volatility for EM, but their growth potential is strong and central banks are prudent. We aim to explore resilient bottom-up stories that are driven by domestic consumption themes in debt and equities.”

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Monica Defend

The election of Donald Trump has brought renewed focus on inflation and its potential ripple effects on global markets. Over recent months, the combination of a resilient US economy, Trump’s anticipated victory, his key appointments, and inflation risks have driven shifts in nominal and real yields. Meanwhile, US equities and the dollar have surged, buoyed by optimism that Trump’s policies may bolster the US economy—though perhaps at the expense of Europe and parts of Asia.

Presenting their insights in the latest ‘Amundi Global Investment Views’, Monica Defend, Head of the Amundi Investment Institute and Chief Strategist, and Vincent Mortier, Group CIO noted, “while US policies will inevitably reverberate across European assets and emerging markets, their actual impact hinges on specific measures and countermeasures.”

“Tax cuts and deregulation proposed under US fiscal policy could provide a growth boost through 2025, but we anticipate they may weigh on growth in 2026. The rising fiscal deficit and national debt are significant concerns and could exert additional upward pressure on bond yields.

“On inflation risks, the Federal Reserve is walking a tightrope as it addresses the final stages of inflation. Policies around immigration control and import tariffs could exacerbate wage and price pressures. This may push the Fed to adopt a more data-dependent approach, likely easing less than currently expected. Such moves will also have ripple effects on global central banks, including the ECB.

“Balancing fiscal governance rules in the EU with the need to invest in productivity, competitiveness, and defence will be no small feat. Countries like Germany, France, and Italy will need to navigate these competing priorities carefully, especially in the post-election environment.

“China is unlikely to take a passive stance in response to US policies. We expect proportionate measures such as fiscal stimulus, export controls on critical minerals, or even devaluation of the yuan as part of their strategy to counter US trade actions.”

The combination of high asset valuations, rising bond yields, and inflation risks has created a challenging environment for risk assets. These factors support a continued rotation toward more attractively priced market segments. Defend and Mortier emphasised the importance of balancing market fundamentals with valuations and policymaking expectations.

They present the following investment overview:

Cross asset: we have upgraded US equities by turning positive on US mid-caps. US stocks should benefit from a combination of positive sentiment stemming from a growth impetus, potential deregulation and favourable tax policies. We also remain marginally positive on the UK and Japan. In fixed income, we remain constructive on US and EU duration and have raised our curve-steepening expectations. We think gold still holds the potential to offer portfolio stability. In addition, investors should consider maintaining safeguards on equities and duration, if US inflation surprises on the upside.

Duration is all about granularity and taking yield volatility into account: in the US, where we are close to neutral on duration, we think there is good value in the intermediate part of the yield curve. But we have tactically downgraded core European duration to neutral, and see political uncertainty persisting in the near term. In US credit, we remain tilted towards quality, and in securitised credit, we prefer high-quality AAA-rated debt in commercial real estate. Our stance is unchanged for EU credit.

Gains in US equities despite rising real yields indicate high market expectations: it is worth looking beyond over-priced stocks. The actual impact on growth would depend on the degree to which Trump’s agenda is implemented. Instead of playing this positive sentiment through expensive large caps, we prefer to rely on areas that display better valuations, such as S&P equal-weighted, value and quality. In Europe, stock picking is likely to gain importance, as weak domestic demand meets uncertainty on international trade.

Emerging markets are home to many uncorrelated bottom-up stories, but US rates are a risk: thus, we remain vigilant and selective, preferring countries such as Turkey and South Africa in local currency debt. In hard currency and corporate credit, we are positive. In equities, we are slightly less constructive on Brazil but remain positive on Indonesia and India.

“As markets adjust to Trump’s agenda and inflation risks unfold, the focus will remain on how global policies evolve and how markets respond. Investors are urged to stay vigilant and flexible, balancing exposure to attractive opportunities with robust risk management. The coming months promise to be pivotal as the world watches how the interplay between US policies, inflation, and global markets shapes the investment landscape,” they concluded.

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