Donald Trump’s unpredictable rhetoric has spurred significant asset rotation across regions and sectors. In such an environment, diversifying investors’ portfolios has never been more critical for preserving and growing capital over the long term. While financial markets remain volatile, the global economic backdrop for investment remains favorable, supported by the following four key factors:
These factors collectively provide a stable foundation for investment opportunities despite ongoing market volatility.
In the U.S.: Economic challenges under Trump policies: slower growth & inflation
The Trump administration’s economic policies are likely to have a mostly negative short-term impact. Government layoffs, hiring freezes, and tariff hikes, alongside sharply reduced immigration and increased deportations, could slow GDP growth to around 2% in 2025, down from 2.8% in 2024. Meanwhile, January’s disappointing 3% CPI inflation, driven by rising prices across goods and services, may prompt the Fed to cut rates by 50 to 100bps by late 2025, lowering the Fed funds rate to 3.5%.
In Europe: Slow recovery, ECB rate cuts ahead
The economic growth outlook remains weak, with signs of consumer recovery. Growth is expected to stabilize at 1% this year, aided by Germany’s growth-friendly policies. As inflationary pressures subside, inflation is likely to stabilize near the 2% target, paving the way for the European Central Bank (ECB) to cut rates by at least 75bps, lowering the deposit rate to 2%.
In China: Steady growth amid tariffs and stimulus
China’s 2025 GDP growth target is expected to hold at around 5%, supported by stronger retail sales and stable investment in manufacturing and infrastructure. While Trump’s 10% tariffs may slightly dampen growth, a stimulus package of RMB 2-4 trillion in bonds and further monetary easing (50-100bp RRR cuts, 20-40bp rate cuts) could offset the impact. Inflation is likely to remain low at ~0.5% YoY, with policy adjustments anticipated in response to ongoing tariff developments.
In February, the tech equity rotation continued outside the U.S., with the Hang Seng Tech Index surging 17.5%, sharply outperforming the Nasdaq 100’s 2.8% decline. U.S. stocks saw their largest valuation-driven reallocation in a decade, as capital flowed into European and Chinese equities. The Euro Stoxx 50 gained 3.3% month to date and 11.6% year to date, driven by a strong defense sector, while the S&P 500 fell 1.4% during the month.
Equity: Global equity markets showed mixed performance in February 2025. The S&P 500 fell 1.4% MTD but remained up 1.2% YTD, while the Nasdaq 100 dropped 2.8% MTD and 0.6% YTD. European and Asian markets diverged sharply, with the Euro Stoxx 50 gaining 3.3% MTD and 11.6% YTD, and the Hang Seng Tech surging 17.5% MTD and 24.6% YTD. Meanwhile, the Nikkei 225 and NIFTY 50 struggled, declining 6.1% and 5.9% MTD, respectively.
Fixed Income: U.S. and German bond yields declined in February, with the 10-year U.S. Treasury yield down 32bps MTD and 36bps YTD, and the 10-year German yield falling 5bps MTD but up 4bps YTD. In contrast, Chinese yields rose, with the 2-year yield increasing 17bps MTD and 34bps YTD, reflecting divergent monetary policy trends. Overall, global fixed income markets showed a mixed picture, with easing pressures in the West and tightening in China.
Currencies: The USD weakened against the JPY, falling 2.9% MTD and 4.5% YTD, while the GBP gained 1.5% MTD and 0.4% YTD. The EUR and RMB saw minimal changes, with the EURUSD up 0.1% MTD but down 0.1% YTD.
Commodities: WTI oil dropped 3.8% MTD and 2.7% YTD, while gold rose 0.9% MTD and 7.9% YTD. Copper surged 5.9% MTD and 13.3% YTD, reflecting strong demand.
Bitcoin: The cryptocurrency faced significant declines, falling 17.5% MTD and 10.0% YTD, signalling ongoing volatility in the crypto market.
The global equities outlook remains positive, with resilient economic growth, central bank rate cuts, and recovering manufacturing. Structural drivers like AI, energy, and defense are expected to fuel earnings growth in the coming years. AI adoption will spur investments in electricity, hardware, software, and the broader tech ecosystem.
In the U.S.: Equities defy challenges, poised for growth
Despite facing headwinds like inflation, tariffs, and competition from low-cost AI models such as China’s DeepSeek or France’s Le Chat, U.S. stocks remain near record highs. This resilience highlights the enduring strength of the U.S. bull market, supported by solid economic and profit growth, favourable Fed policies, and robust AI investments.
In Europe: Euro Stoxx 50 (+3.3%) outperforms S&P 500 (-1.4%) in February on regional rotation from the U.S.
Three key drivers could carry on boosting European markets this year: pro-growth policies post-German elections, a potential Ukraine peace deal, and a manufacturing recovery. European equities, particularly in Germany, have already shown strong performance, reflecting optimism around these catalysts. With rising prospects for higher defense spending and increasing likelihood of positive outcomes, the outlook for European markets remains positive.
In China: Hang Seng Tech (+17.5%) outperforms Nasdaq (-2.8%) in February on regional rotation from the U.S.
Tariffs on Chinese exports could increase to 30%, which might curb the market rally until economic impacts are clearer. However, significant opportunities remain in digital transformation, including AI, tech, e-commerce, and the space industry. The early success of DeepSeek highlights China’s enduring strength in AI innovation, signalling its continued leadership in the sector. In this context, the ongoing government stimulus will underpin the equity market valuation.
Following a robust rally in 2024, the U.S. dollar has traded sideways since Donald Trump’s inauguration. While we anticipate temporary USD strength around tariff announcements in early 2025, there are clear limits to its overall upward momentum. The greenback’s sustained rally appears constrained moving forward.
We anticipate a reversal of USD strength from Q3 2025 as Fed rate cuts will reduce the greenback’s elevated valuation. The USD could decline due to lower Fed funds rates, slower growth, increasing budget deficits, and a weaker trade balance, with Trump advocating for a more competitive dollar, particularly against the RMB and JPY.
Due to heightened currency volatility and uncertainty amid Trump’s new tariffs on China and Europe, we recommend hedging (protecting) EUR and RMB exposures.
EURUSD at 1.0480: Holds below 1.05, parity risks loom
Europe’s sub-1% growth, combined with low and declining interest rates, as well as additional tariffs, all contribute to the EURUSD fall towards parity. The ECB is expected to continue cutting rates by 25 to 50bps per quarter throughout 2025. So far, the un-resolved war in Ukraine is adding a geopolitical “risk premium” on the euro.
USDRMB at 7.30: Close to the all-time high amid Trump’s additional 10% tariffs
The USDRMB pair might rise temporarily due to potential new U.S. tariffs on Chinese imports, although the People’s Bank of China (PBoC) should stabilize it through a controlled fixing range. Eventually, from Q2, the pair should revert and decline on strong China growth, large trade balance surplus (USD 100bn/month) and Trump’s will for a more competitive dollar.
USDJPY at 150: Sliding down to the middle of the [140; 162] range on higher JPY yield
After years of underperformance, the yen is deeply undervalued across multiple metrics. With the Bank of Japan (BoJ) expected to hike rates in 2025 — unlike other major central banks — yield differentials should narrow, helping the JPY recover. From Q2 2025, the USDJPY pair is likely to weaken as the Fed cuts rates and Trump pressures Japan to normalize the yen’s valuation to a stronger level.
In 2025, all major central banks are expected to cut rates except the Bank of Japan. However, since the U.S. elections, rising U.S. yields have reflected recalibrated rate-cut expectations, as the Fed signalled a more cautious approach after 100bps of easing. With policy rates still restrictive, the Fed has shifted to a wait-and-see stance, evaluating growth and inflation trends post-easing.
How to benefit from the cycle of central bank rate cuts?
Bond yields remain high, with wider credit spreads reflecting political unrest in the U.S. and Europe. Despite this, central bank support and resilient economic growth are keeping default rates low, creating a prime opportunity to increase fixed income exposure. Investors can lock in high rates by investing in bank bonds, yielding nearly 6% in USD and 4% in EUR over 5-10 years.
Gold: All-time high at USD 2,950/oz, up 7.3% year to date
Gold prices surged to a new record above USD 2,950/oz in mid-February, supported by robust central bank demand (1,000 metric tons purchased per year) and a four-year high in investment demand. With lower interest rates, persistent geopolitical risks, and concerns over U.S. debt, gold’s appeal remains strong. We anticipate the rally to persist in 2025 as central banks and investors continue to seek safety in the precious metal.
Oil: USD 70/bbl as backwardation holds with an implicit “oil yield” at 6%
The oil futures term structure remains in backwardation (the oil futures price is 6% annualized lower than oil spot today), signalling a tight market. OPEC+ has effectively balanced the market by adjusting production, supported by its spare capacity to manage supply disruptions. Global inventories fell by nearly 50 million barrels in January, reinforcing the market’s tight conditions.
