Overview
Mid-Year Outlook: A global rewiring (full report)
The investment teams we lead spent a long time at the start of 2025 debating valuations. That we were doing so with such vigour was some indication of where we found ourselves. Not necessarily at dotcom bust levels of overvaluation, but certainly at a point where there were real doubts over whether US tech stocks, or credit, could continue as they had.
Fast forward to early June, as we write this, and those instincts have been borne out, alongside a series of events which are arguably rewiring the world economic and security order. As uncertainty related to US policy reaches all-time highs, there has been movement in credit spreads, sharp shifts in currencies and long rates, and stock market volatility in which everyone has taken a good hard look at the underlying solidity of the businesses they invest in. Our bank of analysts do this all the time, and as an institution we’ve proved to be well-positioned for the moves of recent months.
There is still substantial risk from here - by which we mean both for profit and for loss. As our macro team outlines, the outlook for the US economy has worsened significantly. Other economies look precarious too, and in global markets volatility has surged. The world’s big investors are also naturally its big holders of mainstream assets for which the accepted wisdom is being questioned in ways not seen for a generation. We do not know yet where Treasuries or the dollar will end this year. But we can make projections, and we will make educated ones to shape investments across the various asset classes.
With that in mind we’ve packed this year’s Mid-Year Outlook with a wide range of views, be they macro, asset-class, or sector specific. Right at the top of our minds is the fate of the US economy over the next few months, and you will find solid debate throughout this package of articles on the case for diversification - investors’ chief defence in times of significant market and economic turbulence.
The case for Europe has clearly been strengthened, reflected in the market and our view of future earnings. More will be spent on defence and, whatever the domestic political arguments, a Germany that spends more is now a reality. Other central European economies are coming of age and are little exposed to US tariffs. China too, we believe, will flex its fiscal muscle to achieve its economic and policy targets.
Shifting to well-managed income strategies has been an attractive play for many. On the fixed income side, the simple option of cash has also proved popular amid the volatility but as rates come down there will be a tipping point where allocators look for more yield. Asian investors are looking more at European debt and there are signs of a recovery of interest in emerging markets as the structural dollar bull run in play since 2013 shows signs of turning.
Henk-Jan Rikkerink and Salman Ahmed discuss the deep-seated fragmentation of the global order that may arise from today’s policy shifts and its macro and market implications; Lei Zhu and Matthew Quaife consider the implications for China and the rest of Asia; our latest survey of Fidelity International’s company analysts digs into the impact of tariffs on the ground across regions; and in a new section, our experts dig into the implications for particular asset classes and investors’ options in response.
We trust you’ll be as stimulated by their ideas as we were.
