Investment Monthly
End of exceptionalism
05 May 2025
Key takeaways
- Increased policy uncertainty has raised market volatility, which is consistent with our view of markets ‘spinning around’ in 2025
- Recent weakness in US stocks, bonds, and the dollar could point to an end of ‘US exceptionalism’ and a move towards ‘EAFE exceptionalism’, with a rotation in performance to previously lagging sectors and regions
- Diversification is a key theme. Country diversification is back. Alternatives, such as private credit, hedge funds and defensive real assets can build resilience into portfolios. Gold has been a good hedge against uncertainty. Investors should look beyond bonds for portfolio ballast
Macro Outlook
- Our baseline scenario is that we move from “tariff escalation” to negotiation. US growth drops below trend while inflation rises
- Policy uncertainty has risen to extreme levels, creating the risk of sharper downturn and elevated cross asset market volatility
- In China, policy support measures for households, signs of stabilisation in the property market, and expansionary fiscal policy should help mitigate rising external risks
- Rising trade concerns are likely to have diverging effects on Asian economies while macro policies should be supportive for growth
Policy Outlook
- The Fed remains in a holding pattern. We expect gradual policy easing as rising growth concerns offset inflation worries
- The ECB policy rate is now around neutral. Some further near-term easing is likely but German fiscal stimulus can support growth in 2026
- Elevated global trade uncertainty is expected to prompt diverging policy responses across Asia. The Indian and Korean central banks are expected to ease, but Bank Indonesia is constrained
- Chinese authorities have pledged a “more proactive” macro policy and measures to boost services consumption to counter global trade tensions