House View Q4 2025

Equities

We see further upside potential for global equities. Our long-standing expectation the US would marginally outperform Europe this year appears to be playing out, and we see this trend continuing over the short to medium term.

The boom in technology share prices driven by investment in artificial intelligence (AI) is an integral part of the case for holding equities, especially in the US. Bullish arguments for stocks tend to highlight that profits and margins are historically high, as are returns on equity and capital expenditure. Bearish arguments usually focus on extended valuations and market concentration. All of the above is largely driven by the boom in AI spending.

That means any structural bull case for equities must start from the premise that rising AI-related expenditure is sustainable. We believe it is. 

Government bonds

Market expectations of the future path of interest rates look broadly fair, and we think there is scope for yield curves to steepen given the poor state of various governments’ fiscal positions and market concerns the US government is looking to interfere in monetary policy.

Nonetheless, we have a small overweight position in government bonds, largely reflecting the downside risk to economic growth, after recent data pointed to a deterioration in the US jobs market.

In terms of the outlook for US Treasuries specifically, the main risks to our view are that the domestic economy reaccelerates and/or higher inflation reduces the scope for interest rates to fall.

Credit

Corporate bonds look expensive given the meagre amount of additional yield currently on offer relative to government debt. Then again, while this asset class may offer limited upside potential, it is unlikely to cheapen materially so long as a recession is avoided. After all, supply of new debt pales in comparison with the amount of bonds governments will need to sell. It should be comfortably absorbed by the market.

Private Markets

Privately traded debt has outperformed private equity over the past three years as high yields and healthy illiquidity premia sucked in capital which was left to chase a finite pool of investment opportunities

But as we enter the final quarter of 2025, we expect the tide to turn in private equity’s favour. Investors are showing particular interest in tangible asset-backed investment in infrastructure and real estate, with fundraisers in these two areas having secured more capital from investors in the first half of the year than in the whole of 2024.

1. Policy adjustments after the shocks

Economies and markets continue to digest and adapt to several major disturbances seen in the first half of 2025, most notably uncertainty as to the impact of US trade policies, any retaliatory response, and whether supply chains or essential components such as rare earths and magnets would be available at all.

Thanks to fiscal policy loosening in nearly all developed countries, easier monetary policy and the AI boom, we believe recessions should be avoided. But there are risks to the downside if growth slows, or to the upside if the soft patch proves short-lived and investment booms and wealth effects reignite inflationary pressures.

2. AI’s impact broadens across markets, sectors and economies

High valuations and concentration in equity markets have left many sceptical of the ultimate economic and financial benefit of AI. While we have some sympathy for this viewpoint when it comes to the more extreme predictions, we believe AI will be a positive tailwind for markets for years to come.

Business commentary and commitments, actual cash earnings, government initiatives, a strong capex cycle, and positive effects downstream on productivity and margins all suggest the impact will be big and long-lasting.

While returns may so far seem clustered around a small group of mostly US companies, we expect the investments of the biggest tech firms and the productivity potential of the technology will eventually provide strong benefits to a much wider group of companies.  

3. US upheaval widens

The first eight months of Donald Trump’s presidency have seen widespread policy shifts with potentially big ramifications. Many federal workers and regulators have been fired, student loans un-cancelled and immigration curbed, just as the labour-market data have been revised down sharply and inflation has risen.

Perhaps most pertinently, US federal debt is big (about 100 per cent of GDP) and getting bigger, while six per cent deficits will not be reined in significantly (see Figure 7). The OECD forecasts general government deficits in the region of 7.5-8 per cent of GDP over the next few years, going even higher in subsequent years.