The fiscal lever returns in an uncertain global order

The ambiguity surrounding US tariffs and their implementation is raising fears among businesses and consumers that could weigh on economic growth over the medium to long term, while having a temporary effect on inflation. Combining this uncertainty with the high valuations in US stocks and the fiscal announcements outside the US, has resulted in the divergence in performances between the US, European and Chinese equities. The changing stance in Europe caused a repricing of yields.

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Vincent Mortier

Vincent Mortier

Group CIO

We maintain a well-diversified stance, with a positive view on European duration. We are also mildly pro-risk and do not see any signs of red flags with respect to liquidity events or potential credit risks.

Vincent Mortier, Group CIO

Recalibrate and make room for EM

investment

Recalibrate and make room for EM

Deteriorating economic data in the US, without a recession, indicates President Trump’s willingness to sacrifice short term US economic growth and that will keep the Fed on the look out for any signs of pain. This is happening at a time when China is showing clear signs of fiscal support and leaders in Europe are realising the need for fiscal push to become self-reliant and build defence and infrastructure capabilities. This doesn’t call for any risk reduction but instead a furthering of rotation outside US large caps, and a renewed focus on Europe and Asia. At the same time, we prefer keeping a diversified stance through bonds, gold to better cope with any market volatility, and maintain enough safeguards to reduce volatility. On equities, in an overall active approach, we remain positive through EZ and the UK, which offers diversification within the broader European region. In bonds, we adjusted our US duration and curve-steepening stances, staying positive on the 5Y part but are no longer cautious on 30Y. 

Sharp adjustments in yields call for agility on duration

The growth optimism that was reflected in US bond yields when Trump’s election victory gained ground has now turned into a growth scare coming from the uncertainty on his tariff policies. In contrast, Germany’s fiscal push and a realisation across the EU that it should invest more have caused an upward shift in yields across large European economies. The main question remains how soon the benefits of this plan can percolate through to the real economy, and whether other European countries can afford higher yields. Long term, European growth will likely get a boost from more spending but near term implementation risks on fiscal spending remain. Hence, we maintain a flexible stance on duration, and explore quality segments in corporate credit.

Sharp adjustments in yields call for agility on duration

stacking coins

In global equity, stay well diversified

a woman looking at the stock exchange market

In global equity, stay well diversified

President Trump’s policy gyrations are hurting market sentiment at a time when US valuations are still high. The uncertainty emanating from such policies make corporate investment decisions difficult and also cloud the earnings outlook. Hence, it is important to diversify away from the concentration risks in the US, and benefit from this rotation, with a focus on earnings resilience.  For instance, in Europe and in China, while the rotation out of the US has been positive so far, the next leg of performance would depend on earnings. As a result, it is crucial to prioritise areas that show further potential for robust earnings (pricing power, supply chain strength, differentiated products) in the US, Europe and emerging markets.

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2025-04-11
Global Investment Views- April 2025
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