Tariffs, fiscal policy and unintended consequences from President Trump’s policies are likely to keep volatility in stock and bond markets elevated during the third quarter of this year.
“The world is likely to experience softer economic growth as we approach the end of 2025,” Tai Hui, chief market strategist, Asia Pacific at JP Morgan Asset Management, told a media briefing last week.
In response, he believes that the US Federal Reserve may cut interests slowly, while other major central banks will ease monetary policy with lower inflation
In this environment, Hui recommends a diversified equity allocation that includes US and Asia Pacific technology stocks and high-quality European companies.
Unlike some other strategists, Hui (pictured) remains optimistic about the outlook for US tech stocks and their future earnings, which, together with financials that are buoyed by interest rates, comprise around 55% of the S&P500.
“However, investors need to be more active, rather than simply ug the index,” he said.
Among Asia Pacific equities, Hui also like tech, but emphasised ecommerce adopters of AI and cloud service providers.
And although European equities have enjoyed a defence and energy stock led rally this year after a long period in the doldrums, Hui still sees value in companies with strong balance sheets and strong prospective earnings.
In fixed income, he suggests a barbell strategy that on one end has short duration US Treasuries and on the other, high yield developed market corporate bonds.
“There are many good quality credits in the non-investment grade bond market, as reflected by the historically low default rate – currently 0.4% compared with an historical average of 2.1%. Lesser credits have tended to borrow in the private market,” said Hui.
For income generation, Hui likes low correlation alternative assets as well as equity strategies with option overlays.
In particular, he identified active ETFs invested in US equities that have option overlays to mitigate the risk of the market failing to generate – what has seemed like typical – double-digit returns, while receiving income from a low-cost vehicle.
