US policy uncertainty led equity market jitters in Q1 25. Amid volatility, maintaining clarity on signal vs. noise is key. We continue to prefer global equities over bonds and cash in diversified portfolios, but modestly trim the size of our Overweight. We favour a balanced approach between US and Euro area equities, downgrading US and upgrading Euro area equities both to core holdings. While German fiscal spending is a positive, US outperformance appears to have corrected rather than reversed. We favour offshore China equities within Asia ex-Japan. We would continue to buy any dip in gold. USD and bond yields are likely to remain rangebound, though we expect the USD to rise modestly within this range over the next one to three months.
Our core views
Equities: How do we square the circle between falling Q1 earnings and the equity market rally?
Equities
We trim the scale of our Overweight on global equities due to policy uncertainty under the Trump administration. We downgrade US equities to core holding (Neutral). Valuations have become more attractive after the pullback, and EPS growth continues to lead other regions. However, tariff risks are resulting in prolonged volatility. Meanwhile, we upgrade Europe ex-UK equities to core holding (Neutral), supported by fiscal stimulus plans and earnings recovery. However, geopolitical risks and structural challenges could limit outperformance.
