Asset Allocation

April 2025 marks a turning point in the global economic narrative. In the wake of the United States’ sharp tariff escalation – dubbed “Liberation Day” – investors are confronting the ripple effects of a protectionist revival.

Since his return to the White House, Trump has announced a series of country or sectoral tariff increases. If we combine all the measures announced before 2 April (20% on China, 25% on Canada and Mexico with exemption for goods that comply with the USMCA , 25% on steel and aluminum and 25% on automobiles and parts), the average tariff rate on US imports was on course to reach 11% from 2.5% end of 2024.

The election of Donald Trump, coupled with the Republican Party's control of both houses of Congress, has resulted in a new political landscape in the United States. What key decisions must the new administration make? What impact will these decisions have on the macroeconomic environment, financial markets and investors?

Released last September, former ECB President Mario Draghi’s report urged the EU to revive and boost its competitiveness. At the end of January, the European Commission presented the Competitiveness Compass to allow Europe to revive economic growth and secure prosperity.

As economic uncertainties intensify in the United States, European fiscal policies are emerging as a beacon of hope.

For the past decade, US stock markets have largely dominated the rest of the world, thanks to strong momentum in the technology sector and a favorable macroeconomic environment. Paradoxically, since the election of Donald Trump, this trend has reversed and the US market seems to have temporarily lost this leadership role.

We maintain an overweight stance on global equities, adopting a more balanced approach across sectors and regions. Notably, we have a renewed interest in Europe and China, as the catch-up trade in these regions still has potential upside: a range of macroeconomic, geopolitical and technological factors have introduced notable shifts that investors must carefully assess.

Donald Trump’s return to the White House will likely bring a clearer picture of how dominant his policy plans will be. Undoubtedly, his rhetoric and his policy decisions will shape and shake the economy and financial markets.

The US election results were a significant market driver, with Donald Trump’s victory and the Republican majority in Congress boosting expectations of tax cuts, deregulation, expansionary fiscal policy and a stricter trade policy.

The results of the US elections are quickly being absorbed by financial markets, propelling US equity indices to new highs.

Donald Trump heads back to the White House as the 47th President, with an increased likelihood of a Republican sweep. Yesterday (6 November), market reactions were strong, with US stocks hitting all-time highs, 10Y bond yields jumping to 4.5%, and the dollar surging against most currencies.

Although navigating by the stars can seem brave and adventurous, we would not recommend it on financial markets. Better be equipped with a solid compass !

All of a sudden, the US is in a sweet spot as growth accelerates, inflation falls, the Fed eases and both presidential candidates are ready to spend massively.

The steady rise in massive deficits and debt-to-GDP ratios has made public debt a staple of the financial press. However, in the wake of European elections and the opening of excessive deficit procedures, this topic - neglected by previous governments - is once again becoming a political issue. By 2025, there will be no getting around the issue of fiscal rebalancing in developed countries.

Before the measures recently announced, China was confronted with significant deflationary forces and was struggling to meet its 5% GDP growth target. Youth unemployment rate reached 24%, consumer confidence has been at rock bottom levels for years, household consumption has remained well below pre-pandemic trends and the real estate market has been falling for four years.

We maintain a constructive outlook on equities but proceed cautiously in the short term.

The MSCI World (developed countries index) hit an all-time high in mid-July, following an almost uninterrupted 33% rise since its low point at the end of October 2023. Only a correction of around 5% in April 2024 enabled some reactive investors to jump on the bandwagon if they hadn't done so since the last quarter of last year.

After focusing on the elections in France and the UK, investors’ attention is rapidly shifting towards the United States. The first presidential debate has increased the likelihood of a second Donald Trump presidency, implying a potential risk of higher inflation in 2025.

2024 was already a key election year, with more than half of the world’s population going to the polls. French President Emmanuel Macron’s decision to dissolve his own legislature in response to the European Parliament elections added to the list.

The price of gold has risen by over 17% since the beginning of the year, making it one of the best-performing assets this year. After hovering between US$1,800 and US$2,000 in 2023, the price of gold surged in March and April 2024, rapidly reaching US$2,400.

Markets got over the near-term consolidation, as both bottom-up and top-down elements were helpful: from a micro level, the Q1 earnings season was supportive on both sides of the Atlantic, following a stronger-than-expected global economy at the start of the year.

In our opinion, it is time to add cyclicity to the portfolio to benefit from an improving environment.

On April 13, Iran decided to strike Israel with 300 drones and missiles following an attack on its diplomatic compound in Syria. Regional escalation and oil price are at risk. This tail risk cannot be ignored. We are closely monitoring the unfolding situation.

Japanese equities have enjoyed a positive run since the start of the year (+20.8% performance to 27 Mar 2024 ), with the Nikkei recently hitting all-time highs, surpassing the peak of the 1989 bubble .

The transatlantic debate on central banks’ monetary policy has evolved to being just a question of timing and magnitude as the odds remain undoubtedly in favour of a soft landing.