House View Q3 2025

Equities

Global equity markets, having recovered strongly since April, reached new all-time highs in early June. Despite the impressive recovery, we disagree with the idea they are ignoring risks and headwinds. Indeed, we see upside potential for markets in the second half of the year.

While valuations were, and still are, a concern, high valuation ratios alone are rarely a catalyst for a de-rating. The environment is supportive of equities: earnings growth is robust despite the tariffs, profit margins are historically high and balance sheets are healthy.

In the absence of further geopolitical shocks or a sharp re-escalation of trade wars, equities have scope to rise further in the second half of the year. 

Government bonds

While we are broadly neutral on government bonds, we have a preference for UK bonds over US and German ones. This reflects our view that UK interest rates are likely to be cut quicker and by more than the market anticipates coupled with the impact of looser fiscal policy in the US and Germany.

We also believe the European Central Bank (ECB) is unlikely to cut interest rates any further, limiting the scope for euro zone bond markets to outperform.

In Japan, we expect the long end of the yield curve to flatten as it seems likely the government will switch to issuing shorter dated bonds as opposed to longer maturities as monetary policy is tightened further.

Credit

Corporate bond markets have recovered strongly, in tandem with equities, after President Donald Trump rowed back on some of his trade threats. However, with the yield spread over comparable government bonds once again close to historically low levels, it is unclear whether investors are being adequately compensated for the additional risk.

Overall, we maintain a cautious stance with a preference for European bonds relative to US peers, with high-yield European issuers comparatively less exposed to the risk of default. While the auto and pharmaceutical sectors look vulnerable to the threat posed by higher tariffs, the banking and communications sectors looked to be in a stronger position.

Private Markets

Private debt continues to offer attractive all-in yields and downside protection. Infrastructure debt has been resilient: against a backdrop of elevated public debt levels, infrastructure investment is increasingly viewed as a policy lever for industrial policy to support economic growth, the energy transition, and digital transformation. Private debt looks attractively priced relative to public issues. The higher interest rate environment and illiquidity premia mean yields are attractive.

Real estate markets have stabilised, revealing a more selective but compelling opportunity set that includes UK single family housing, Spain’s multi-family investment, and logistics and warehousing. In a year marked by macroeconomic and geopolitical uncertainty, private markets offer investors a diverse mix of opportunities with exposure to long-term structural trends and illiquidity premia. Our most recent Private Markets Study revealed a deepening conviction in the asset class with more than 70 per cent of institutional investors expecting private markets to outperform public markets over five years.

This conviction is not merely cyclical as it also reflects a structural shift in how investors are approaching portfolio construction in a world of heightened volatility and evolving risk premia.

1. Erosion of American exceptionalism

The phrase American exceptionalism can be interpreted in a variety of ways, but there is no question that for years US financial markets, and the country’s place in the global economy and geopolitics, has been unique.

The prospects for the US dollar, US Treasuries and US equities are under scrutiny like rarely before. How US financial assets fare relative to international peers will depend to a large extent on the US administration’s trade policies, and its foreign policy, as its allies begin to question Washington’s reliability as a partner.

2. US domestic upheaval: Projects for 2025 and beyond

Following through on many election pledges is often a surprise in politics. President Trump had aggressively raised tariffs on imports, though the adverse market reaction and threat of a recession led to him hastily reversing course.

This imposition of broad-based tariffs can be thought of as a negative supply shock that, when permanently imposed, raises prices and decreases an economy’s potential growth. Uncertainty about future tariffs may deter US investments, which might cancel out any benefits from protection from foreign competitors. So far, while tariff revenues have been collected, it has been harder to discern a large economic impact on inflation or company profits. Other domestic policy shifts may also eventually impact data collection, labour supply and wages, and specific sectors such as tourism and hospitality, agriculture, medical research, and education.

3. Rapid evolution of tech revolution

Fears a drop in the cost of ‘training’ artificial intelligence (AI) models would dampen revenues have been largely assuaged. Accelerating usage, particularly in China, and a significant increase in planned capital expenditure points to lower pricing being met with higher consumption.

Although enthusiasm is global, the US remains firmly in the lead. It dominates AI adoption, with firms like JPMorgan already quantifying AI-driven revenue and cost savings across multiple business lines. Moreover, sectors such as telecoms, professional services and finance, that stand to benefit most from the adoption of AI, make up a bigger share of economic output in the US than in its other main competitors.

4. Monetary easing: Marching out of step towards the same ‘neutral’ destination

Central banks continue to exercise caution after the post-Covid inflation surge proved larger and less transitory than most had anticipated. While not everything is forecastable, and the Russian invasion of Ukraine caused a spike in oil and gas prices that could not have been anticipated, policymakers were slow to react, as evidenced by the fact inflation is still widely above target for a fourth year.

This means monetary policy is being kept in slightly restrictive territory by the US central bank, Bank of England and their counterparts in Norway and Australia. Meanwhile, the Bank of Japan is confronting higher inflation but is unsure of whether it will prove durable, and is only slowly hiking rates, while the ECB is in a different position altogether, having been able to cut rates more aggressively.